How Can I Sell My Business?
Some businesses have to come to an end. This can be because of retirement or wanting to focus on something new. Whatever the reason for wanting to close, why not sell the business and make some money in the process?
There are quite a few steps involved in selling a business, as well as having several legal requirements that will need to be fulfilled. So, in order to keep on top of everything that would need to happen, we've created this handy guide.
What's the first step?
You'll need to consider why you're selling your business. If it's because the business is in financial trouble then you may not be able to sell, or the process may be long and drawn out.
But whatever the reason for wanting to sell, take a look at the current market conditions and have a think about the ways you can move forward. Also, prepare yourself for any potential Capital Gains Tax you might need to pay if you profit from the sale of your business.
You'll need to inform all stakeholders that will be affected by the decision. You may also need to get permission from some of the stakeholders before you're legally allowed to sell. You also need to get consent from any other shareholders in your company. If you're the only shareholder, you can resign as director and sell your shares - effectively buying yourself out of the business.
You'll be expected to demonstrate a consistent financial performance over the last 2-3 years - if you've had a bad trading year, your business won't be worth as much. This is why most business owners start thinking about selling a few years in advance.
Should I use a broker to sell the business?
After you've got permission from your shareholders and your business is in a good place financially, you need to start thinking about how you will actually go about selling your business.
There's nothing stopping you from approaching former employees, colleagues or current competitors and soliciting a sale on your own behalf. Once you've found a buyer you're happy with, it's just a matter of fulfilling legal requirements and signing over shares. But this process can be long and tricky, which is where professional brokers come in.
What is a broker?
Brokers, also known as business transfer agents or intermediaries are professionals that are trained to assist buyers and sellers of businesses. Brokers are usually the ones responsible for estimating the value of the business and advertising it on various platforms. Brokers also handle initial buyer interviews, discussions and facilitate any due diligence checks.
A main advantage of using a broker is that their estimated value of the business can carry more weight than a figure you've assumed the value to be. At the end of the day, a business is only worth what someone is willing to pay for it, a broker can use years of experience in order to estimate what someone would be willing to pay for your business.
Don't forget to do your research before hiring a broker and make sure you're getting the best value for your money.
What is due diligence?
When your business attracts a potential buyer they will hire a solicitor and an accountant in order to carry out due diligence on the business.
Due diligence checks tells the buyer that your business is in a sound or sustainable position. The information should help them to make an informed decision about whether they should proceed with an offer. Due diligence checks usually consist of:
- Profit and loss accounts
- Tax returns
- Lease agreements
- Details of outstanding loans
- Details of current or future liabilities
- Details of payments or credits due from suppliers, customers or clients
If you're using a broker to sell your business, they will oversee these checks and provide all relevant information on your behalf.
These checks need to be completed as accurately as possible in order to ensure a smooth sale. How long they take can depend on a variety of factors as well as how complex your business operations are. For a small company the checks usually take about 30 days.
What are the legal requirements that need to be fulfilled?
After the due diligence checks have been completed, an offer has been made and you've accepted it, you'll need to handle a crucial few steps.
If you haven't already, you'll want to hire a solicitor in order to oversee any contracts between you and the buyer.
Next, you need to inform Companies House about the sale of your business. In order to do this, you need to update the registered details of all directors, secretaries and shareholders. Also, you need to inform them about the date from which you will no longer be appointed as a director of your company.
Now you need to complete a statement of capital. This can be done as part of your Annual Confirmation Statement. Here you should provide all details about the sale of your shares, and a request should be made for your name to be officially removed from the register.
The final step is to complete a stock transfer form to record the sale of your business. This needs to be sent to the Stamp Office for any transfer of shares in which the transaction is over £1,000 per share. For eligible transactions, there is a 0.5% Stamp Duty, rounded to the nearest £5.
For shares under £1,000, no one involved will have to pay Stamp Duty.
Stock transfer forms must be sent to the Stamp Office no later than 30 days after the forms have been signed and dated. You will also need to send a copy of the form to HMRC if the new shareholders need to pay Stamp Duty as part of the transfer.
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