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How Can I Sell My Business?

Not every business is built with the long-term goal of being passed on through the generations. Therefore, the business owner who started it also needs to know how to sell it when the time comes. This could be due to retirement or wanting to start a new project with the capital from the sale of the business.

Whatever the reason is for wanting to sell your business, you need to ensure the sale is carried out correctly. When selling a limited company, several steps and legal requirements must be fulfilled.

Ensure you're selling for the right reasons

The first step is knowing why you're selling the business.

If you're looking to offload a business that's facing financial difficulty, you might not be able to sell; rather, you might have to look into the liquidation process.

However, if you're selling for another reason, such as retirement or gaining access to the capital from the sale, take a look at the current market conditions and consider whether now is the right time to sell. Remember: you might have to pay Capital Gains Tax on any profit resulting from the sale of the business.

Ensure you have permission to sell

You might think that you have absolute authority over the business and its sale because you're the business owner. However, you need to gain approval from your stakeholders and shareholders.

If any of these parties object to the sale of the business, there might be restrictions placed on the sale.

Typically, if you're the sole shareholder of the business, you can simply resign as director and sell your shares in the business, effectively buying yourself out.

Check your financial performance

Not many people want to buy a failing business and attempt to turn it around, which means you'll have to prove consistent financial performance of the business. Typically, this is over a 2-3 year period, and if your business has a poor performance in one of these years, it could be downvalued.

Therefore, you should consider starting proceedings a few years before you're ready to sell the business.

What is a broker?

Brokers, also known as business transfer agents or intermediaries, are professionals who are trained to assist buyers and sellers of businesses. Typically, brokers estimate the value of the business before advertising it on various sales platforms.

Once a party has shown an interest in buying the business, the broker then handles the initial interviews, discussions, and any due diligence checks.

Do I need to use a broker?

While you don't need to use a broker to sell your business, there are a few advantages you could benefit from.

The 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 company is only worth what someone is willing to pay for it, a broker can use years of experience 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 can I do if I don't use a broker?

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; if you're unsure what you're doing, it might be best to use a broker.

What is due diligence?

When your business attracts a potential buyer, they will hire a solicitor and an accountant to carry out due diligence checks on the business.

Due diligence checks tell the buyer that your business is in a sound or sustainable position. The information should help them 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.

How long do due diligence checks take?

There's no set length of time for these checks to be completed, as it depends on the complexity of your business. However, for small businesses operating out of a single location, it can take as little as 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 the legal aspect of the sale.

If you haven't already, you should hire a solicitor to oversee any contracts between you and the buyer.

Next, you need to inform Companies House about the sale of your business. To do this, you need to update the registered details of all directors, secretaries and shareholders. Also, you must inform them of the date from which you will no longer be appointed as a director of the 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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