Selling your business

Jun 26 2007 By the Evening Gazette

Selling your business could be the most important financial deal you'll ever make.

For many owners, selling the business they've spent years building up can also be emotionally difficult. And unless you've sold another business previously, you'll have no experience to draw on.

Is selling my business the right option?

Before selling your business, you need to carefully assess your reasons for doing so. You need to consider four key questions:

1. What are your objectives as the owner of the business? For instance you might want to realise some or all of your investment in the business.

2. What are your objectives as manager of the business? You might want to retire as soon as possible or prefer to keep running the business.

3. What are your objectives for the business itself? e.g. the business might need new investment in order to grow.

4. Who else will be affected and what will they want? Consider how shareholders, managers and employees and even key customers and suppliers may feel the impact.

Ways to sell your business

Most businesses are sold in a trade sale to another business. Alternatively, you may be able to find a private-equity buyer.

For instance a venture capital firm might be prepared to help your management buy the business.

There are several different sale options:

Partial or full sale - You may want to sell the entire business. Sometimes the purchaser prefers you to retain partial ownership and continue to run the business. This can give the purchaser confidence that the business will do well.

Sale of assets - You can sell assets such as equipment, intellectual property or your customer list rather than selling the business itself.

This may be attractive to a purchaser who does not want to take on liabilities and obligations, e.g. the purchaser might not want to take on your employees. You will be left with whatever assets and liabilities are not included in the sale.

Immediate or phased payment - You can ask for payment in full when the sale is completed, or you may be prepared to accept payment in instalments. The purchaser may well prefer to pay in instalments. But you will be at risk if the purchaser cannot make future payments.

Your choices can affect whether buyers are interested and how much they are prepared to offer. They can also affect the tax treatment of the sale.

When to sell your business

Selling at the right time can have a significant impact on the price you get for your business. If possible, plan ahead so that you can pick the best moment rather than being rushed into a quick sale.

If you plan to retire in five years' time, it's a good idea to start planning the sale of your business now.

The general state of the economy and your sector in particular can have an effect. It's easier for a trade buyer to fund a purchase when their own business is doing well, interest rates are low and banks are keen to lend.

The state of your business is a more important factor. Aim to sell when profits are increasing and look likely to grow further.

Consider the impact of sales cycles or seasonal fluctuations in your business, e.g. you might have fuller order books at a particular time of year.

Planning well in advance also allows you to groom other aspects of your operations to ensure your business is as attractive to buyers as possible.

This can enable you to ensure that equipment is well-maintained, key contracts are in order, and that you are complying with all legislation.

The detailed timing of a sale may also depend on the tax consequences, and any forthcoming changes to tax rules.

Choose advisers to sell your business

Experienced advisers are essential for an effective sale. The right adviser can have a big impact on the success of your sale. You will need an accountant and a solicitor.

The accountant concentrates on the financial aspects of the sale, such as preparing accounts for the business.

The solicitor focuses on legal issues such as drafting a sale agreement. You also need to use a specialist tax adviser to handle business and personal tax planning. Most businesses also choose to use a specialist corporate finance adviser.

The corporate finance adviser is involved at an early stage and helps you choose the timing, find potential purchasers, groom the business for sale and negotiate the sale.

The adviser can manage the whole sale process, leaving you free to continue running the business. To find a suitable corporate finance adviser start by speaking to Business Link who can help you locate a specialist in your sector.

Always examine advisers' skills and expertise carefully. You should look at:

1. What experience they have of selling similar businesses and how successful they've been.

2. How they can help you to market the business.

3. What contacts they have among potential purchasers.

4. What references they can provide.

If you're using a firm of advisers, make sure you feel comfortable with the people you'll be dealing with on a day-to-day basis. Of course you will have to pay your advisers and many charge an hourly rate.

Alternatively, you may be able to negotiate a fixed rate for a particular piece of work.

Some advisers, particularly corporate finance specialists, are prepared to negotiate a success fee as part of their payment, e.g. you might pay lower fees if you don't achieve your target price.