How to sell a business in the UK

Selling a business you built is a bigger decision than any you made while running it, and you will probably only do it once. Buyers, brokers and lawyers do it every week. That gap in experience is where most of the problems come from, so it helps to know the order things happen in before anyone else is in the room.

Start with what you want, not with a price

The first question isn't what the business is worth. It's what you want your life to look like in three years. Some owners want to sell everything and leave on a set date. Some want to sell part, keep a share and stay on in a smaller role. Some want to hand over to a manager gradually and sell over two or three years.

Each of those is a different deal with different buyers. If you go to market without deciding, you'll end up with whatever deal the first serious buyer prefers. Write down a few things before you talk to anyone:

• How long you're willing to stay, and in what role.
• Whether you'd keep a share, and for how long.
• What matters to you beyond the money: the name, the team, the customers, the building.
• The figure you need to walk away with after tax, which isn't the same as the price.

Get the business ready before anyone looks at it

The work that adds most to the price is done before a buyer sees anything. Buyers pay more for a business they understand and that doesn't depend on one person.

Your accounts

Expect a buyer to ask for at least three years of accounts and a current year of management figures. They'll want to see the profit the business makes on its own, so your accountant should be ready to show any one-off costs and anything you pay yourself that a new owner wouldn't.

How much it relies on you

If the customers ring you, the suppliers deal with you and the team waits for your decisions, a buyer is really buying you, and you're leaving. That either lowers the price or ties more of it to you staying on. A manager who can run the day to day, and processes that are written down, are worth more than almost anything else you can do in a year.

The paperwork

Gather the things a buyer's solicitor will ask for: customer and supplier contracts, the lease, employment contracts, licences, insurance and any disputes. Finding a missing contract now is a nuisance. Finding it during due diligence costs you money or time, sometimes both.

Work out roughly what it's worth

Most owner-run businesses are valued on their profit, adjusted for anything unusual, and multiplied by a figure that reflects how risky the buyer thinks the business is. Cash and debt in the business are then added or taken off. Our guide to how to value a business goes through it in detail, and our valuation tool gives you a rough range in a few minutes.

A rough range is enough at this stage. Its job is to tell you whether a sale gets you what you need, not to set an asking price.

Decide who you'd sell to

The likely buyers for an owner-run business in the UK are:

• A competitor or a larger business in your sector that wants your customers, your team or your patch.
• An investor or a buyer of owner-run businesses, who usually wants the business to carry on much as it is, often with you or a manager running it.
• Your own managers, through a management buyout, usually funded by a bank or an investor and often partly by you.
• Your employees, through an employee ownership trust.
• Family, which raises its own questions about fairness and tax.

You can find buyers through a business broker or a corporate finance adviser, who will prepare the information, approach buyers and run the process, usually for a monthly retainer and a success fee. Or you can sell privately, to someone who approaches you or someone you approach. Selling privately saves the fees and keeps the circle small, but you'll need your own accountant and solicitor to do more of the work.

Keep it confidential

Word that a business is for sale can unsettle staff, customers and suppliers. Ask any buyer to sign a confidentiality agreement before you share anything detailed, and share in stages: a summary first, the full figures once there's real interest, and the most sensitive things, such as customer names and salaries, only once heads of terms are agreed.

Offers and heads of terms

When a buyer is serious, they'll make an offer, and if you accept it in principle, both sides sign heads of terms. This sets out the price, how and when it's paid, what you'll do after the sale, and how long the buyer has exclusive rights to negotiate with you. It isn't usually legally binding on the deal itself, but it sets the shape of everything that follows, so it's the document to get right. We've written a separate guide to heads of terms.

Look closely at how the price is paid, not just the headline figure. A price can be paid in full at completion, partly later (deferred consideration), partly depending on how the business performs (an earn-out), or partly by you lending the buyer money (vendor finance). Two offers with the same headline can be worth very different amounts.

Due diligence

After heads of terms, the buyer checks that the business is what you said it was. Their accountants go through the figures, their solicitors go through the contracts, and they may look at your property, your systems and your team. Expect long lists of questions. Answering them quickly and fully is the best way to keep the price where it was agreed, because surprises found in due diligence are often used to renegotiate.

The legal documents

Most sales of a limited company are share sales: the buyer buys your shares, and the company, with its contracts, staff and history, carries on underneath. The alternative is an asset sale, where your company sells the business and its assets to the buyer and the company is left behind.

The main document in a share sale is the share purchase agreement. Alongside it:

• Warranties are statements you make about the business. If one turns out to be untrue and the buyer loses out, they can claim against you, usually within limits on how much and for how long.
• Indemnities are promises to cover a specific known risk pound for pound.
• The disclosure letter is where you list anything that would otherwise make a warranty untrue. Disclosing properly is your main protection.

If you're keeping a share, there will also be a shareholders' agreement covering your role, decisions you have a say in, and how and when you can sell the rest.

The tax

If you sell shares, you'll usually pay Capital Gains Tax on the gain. Business Asset Disposal Relief can reduce the rate on qualifying gains, up to a lifetime limit, if you meet the conditions. In an asset sale, the company is taxed on the sale and you're taxed again when you take the money out, which usually costs more. The timing of payments, and whether part of the price depends on future profits, can change the tax too.

This is the area where advice pays for itself. Talk to your accountant before you agree heads of terms, not after.

Your team

In a share sale, nothing changes for your employees legally: the company is still their employer. In an asset sale, employees usually move to the buyer on their existing terms under the TUPE regulations, and both sides have to inform, and in some cases consult, the staff affected.

Either way, when and how you tell people matters. Most owners tell key managers before completion, under confidentiality, and everyone else on the day or soon after, ideally with the buyer in the room.

Completion, and what comes after

On completion day the documents are signed, the money that's due up front is paid, and the shares change hands. For a lot of owners that's not the end. If you've agreed to stay on for a handover, or kept a share, the next year matters as much as the sale did.

Before you sign, be clear about your role afterwards: your title, your hours, who you report to, what you can and can't decide, and what happens if it doesn't work out. Owners who are unhappy after a sale are rarely unhappy about the price. It's usually because the year after wasn't what they expected.