How to Sell a Business UK – The Complete Strategy

An A to Z roadmap showing you how to achieve the best possible deal. Covering everything from business valuations to the selection of market channels and everything you need to know regarding due diligence.

Conventional wisdom suggest that a business owner does not have a very good chance of securing a great deal without consulting an expert. In the not so distant past, this wisdom held true. Though with the advent of certain technologies, access to data and a new level of transparency, business owners can usually succeed in getting a low cost and successful exit – if they incorporate the following factors in their strategy.

First and foremost…

Preparation

To greatly increase your chances of achieving a good deal, you must adequately prepare before going to market. Failure to do so will likely result in difficulty finding a buyer, or it could put you at risk of your deal collapsing half way through any potential negotiation.

Here are some of the most vital preparations to sell a business:

    • Prepare up to date accounts and sell at or soon after year end.
    • Tidy up leases, contracts, legalities (common cause of due diligence issues, as covered later).
    • Settle litigation, employee disputes.
    • Push cash flow to bottom line (reduce personal expenses)
    • Reduce owner dependence by delegating more responsibility to managers.
    • Liaise with a professional for advice on the best deal specific to your business, including your tax position.
    • Apply a touch of gloss!

Don’t stress over pre-sale valuations

When considering how to sell a business, do not overfocus on {pricing your business} pre-sale valuations. They can quite often serve as a distraction and even influence your expectations relative to the reality of the market. The owner is the main driver of value – through good preparation, better marketing and an excellent overall strategy.

Create a brief business sales profile

Arouse intrigue by producing a one-page market ‘teaser’ with important information about your business. Use the following as a template for distribution to buyers and advertisers:

      • What you offer and where
      • How it is unique in relation to competitors
      • Potential for expansion
      • Reason for selling
      • Display financial information (Turnover, GP, EBITDA)
      • Contact details (create a unique gmail to keep initial anonymity)

Importance of anonymity

Unintended disclosure of certain aspects of the sale of your business can be unsettling to the various stakeholders such as employees, customers and suppliers. If confidentiality is crucial, you must provide buyers with a non-disclosure agreement (NDA) and request for it to be signed prior to the release of detailed information. A genuine buyer will not refuse and there are many online NDA’s available for use.

Effective marketing

It is often a matter of sheer volume when finding a buyer. Expose your business to as many potential buyers as possible and aim to achieve serendipity of timing between your availability and the buyers requirements, including funding capability. Consider the following channels:

      • Market research (Who is buying, advising, commentating)
      • Business for sale websites (enter “how to sell a business UK” into popular search engines)
      • Agitate the market (find out who is buying and issue a copy of the profile previously discussed)
      • Use social media
      • Use google ads
      • Local press/business networks

Identify and liaise with potential buyers

Buyers have no shortage of opportunities to choose from – reply to buyer enquiries with a copy of the aforementioned business profile and – if necessary – an NDA. In combination with this, request information about their intentions:

      • What interests them about your business?
      • What are their current circumstances and have they any experience in your sector?
      • Where are they based?
      • How long have they been considering buying your business?
      • How will they fund a purchase?

Eliminate time-wasters and focus only on those with a real interest. Do your homework on potential buyers via the internet, especially on sites such as LinkedIn and Duedil, where you can access information about the company/director for free. Deals are secured under an ethos of trust and mutual respect, therefore, it is advisable to start a dialogue with an initial meeting over Skype, or ideally, face to face.

Create a detailed information memorandum

Commonly, buyers will require some detailed information in the form of a business summary or an informative memorandum. Don’t stress over this document, as many of the IM’s produced by experts are overdone and are about as exciting as drying paint. Usually, businesses are easily summarised, and buyers prefer a concise and targeted document. The best thing to do is to again return to the business profile, and expand upon it.

It is advisable to go a little further and produce a brief strategy document, as no one knows the business better than the seller. Tantalise potential buyers with valuable insights and offer them tips on what you would do if you were buying the business. This will serve as an invaluable sales tool and will successfully convey your level of cooperation.

Be empathetic and communicative with prospective buyers

Securing the right deal can be an intricate process and does require patience from all those involved. Many hurdles can present themselves and some of the most common difficulties are as follows:

      • A seller’s inflexibility with regards to price and specific terms – this is often influenced by the pre-sale valuation mentioned previously.
      • A seller’s lack of understanding in terms of the market vulnerability of their business and/or their bottom line and consequently, the buyer’s perceived level of risk.
      • Overestimating and underestimating the value of the business – this will indeed cause disagreement and getting an accurate estimate is of paramount importance.

Adequately prepare for negotiation and to close the sale

Decide what you are willing to accept in terms of price. By this point you should have a valuation and thus, you will at least be able to recognise whether an offer is in your region of acceptability. In the negotiation process be sure to keep in mind any other prospective buyers you may have, and in doing so you will come across as not having all your eggs in one basket. On the other hand, be aware of the potential scenario in which you say no to the buyer and must calculate the value of your time between losing this one and finding another.

Getting an offer is of course good news, and should not be dismissed lightly. If the negotiation falls short of what you hoped to achieve, decide if there is the potential to formulate a solution. This may take the form of bridging a price gap by taking some cash upfront and deferring the balance to a later date.

Be flexible. Some buyers may walk away from a negotiation due to matters of pride, if the seller is not respecting their requirements. If the monetary dispute is unsolvable, is there anything else that can be done to alleviate concern?

The Heads of Terms document

If and when a price is agreed upon, ensure the buyer communicates some clarification to you in the form of a Heads of Terms document. It is not legally binding, though it serves the purpose of solidifying the essential components of the agreement and this will become the framework of the deal. This document will be taken forward into due diligence and the agreement of the sale and purchase. Expect this document to undergo numerous redrafts along the way however, so ask questions before the ink is dry. Anything you are unsure about today may pose a significant dilemma tomorrow.

Prepare yourself for due diligence

Due diligence is going to be covered in more depth below, although this is an appropriate time to mention a few points. It is at this stage in the process when you might be under the impression that you are home and dry – you are not. This is the stage at which the most difficulty and stress is generally encountered.

As you are now exposing the buyer to the inner workings of your business, they may seize the opportunity to point out flaws that were previously undisclosed or overlooked, and they may subsequently price chip.

The good news is, you have invested your time into reading an informative guide and now your lengthy preparation is ready to pay dividends. The more you prepare {the sale of} your business, the lesser the potential for unexpected issues arising during the due diligence process. A critical area of focus – as mentioned near the beginning – is tidying up any issues relating to leasehold properties. You do not want to find yourself waiting for the consent of an indifferent landlord who has no real stake in the matter. We will be covering due diligence further a little later on.

Take necessary precautions

It is quick and simple to download a sale and purchase agreement at www.lawdepot.co.uk – ideal for a small asset sale.

For the sale of a larger business, or indeed share sales, it is highly advisable to employ the services of a solicitor, bearing in mind some key considerations.

      • Ask for evidence of their experience working on similar deals
      • Ask for confirmation of their holiday plans through the due diligence completion process. Delays can prevent deals, so do not hire someone who is not entirely available to drive the deal to completion.

How long does it take to sell a business?

This is by far the most common query from business owners, and it is also the most difficult to answer due to the varying circumstances of individual companies. The kinds of variables that affect the duration of the sales process include the sector in which your company operates, the readiness of the market and of course the expectations of the seller. All of these play a crucial role in answering the question of longevity, but the time it takes to achieve a deal can occasionally depend on sheer chance. One company may arrive on the market at the exact time at which a financial director has been assigned the task of procuring a business quickly in line with an eager strategy for growth.

Timing is a factor that must not be overlooked. Landing on the market at the wrong time, such as when a financial director has just been halted in his acquisitioning mission, means your waiting time could be extended. But again, this is just a matter of lucky timing.

How long does it take to sell a small business?

Generally speaking, it is advisable to expect the endeavour to take between 9 – 12 months from beginning the process to closing the deal and handing over the business. If your enterprise is still in need of undergoing the preparation laid out in this article, you may need to extend the forecast by however long it takes you to do so. Completion time can vary greatly however, depending on individual circumstances.

Larger businesses take longer to sell

For anything upward of a medium-sized business, expect an even lengthier process – and lengthier still if you have not yet done the essential preparation. A 12-18 month process is usual for business of this stature.

You should also bear in mind that the performance of your business should not drop during the entirety of the process – so do not become complacent in the assumption that the heads of terms guarantee completion of the sale.

The actual exchange of funds can take some time, with the buyer often having to obtain external finance, which requires preparation and approval by the third party. The seller should always evaluate the financial position of the buyer as early as possible in the negotiation process, and not rely solely on informal assurances. Ask for some proof. There is nothing to be gained in entertaining someone who cannot afford to pay.

Do not allow yourself to be pressured and do not hurry into an agreement. Maintain control at all times or face the deal being broken up into lengthy individual segments. As stated before, delays destroy deals. You can view our How to sell a business quickly guide if you’re looking to sell your business fast.

A further word on due diligence

Due diligence is comparable to getting your annual MOT check. A car with a valid MOT is desirable and of a higher value, and the one without will attract a smaller price. It is a vital aspect of all business sales and the only real way to cross examine the information offered by the vendor.

You need to make a decision when going to market with your business; will it be sold in the best achievable condition, or marketed as a renovation project?

Either way, such things must be declared up front and factored into the price…as due diligence will reveal all regardless.

Even if your business is in great shape, and you have meticulously followed the previously outlined strategy, it will still need to undergo a process of approval. This will necessitate the enlisting of accountants, sales advisory experts and IT experts to undertake what is known as vendor due diligence.

With a team assembled your business with go through the stages of optimisation in order to provide a clearly outlined business strategy, transparent financials, informative details of your company’s inner workings and lastly, proof that your IT infrastructure is operational. This information will then be presentable to a prospective buyer in the form of a physical or virtual data bank, so that they may become satisfied by performing their own due diligence

If you do decide to market your business as a renovation project, it is still important to gather this information, but potential buyers may be more lenient. Transparency is key whichever way you decide to go, as undisclosed flaws will only result in liabilities further down the line.

The cruciality of TIMING

As touched on previously, timing can largely depend on the graces of lady luck…though a savvy vendor never relies on chance alone. First we will cover exactly what constitutes a bad time to sell.

Unless it is your desire to jump ship and cut your losses, you never want to try and sell your business while experiencing a dip in profitability or some other strains. An experienced buyer will identify such opportunities and quickly capitalise on them.

Your best option is to ensure every step outlined in this article is implemented fully in order to present your business as being on a clear upward trajectory, signalling potential for growth, reinvestment, employment opportunities, new markets and fresh product lines.

Glenn Elliott, founder of Asperity Employee Benefits – an employee benefits, recognition and communications company – asserts that; “You will know when the time is right”. His business is now used by over 1,100 clients, not limited to, American Express, Groupon, Yahoo and McDonald’s in order to provide for their staff a wide range of benefits offered on the platform.

The company was sold by Mr Elliott to Inflexion Private Equity, though he still retained a 25% stake and the position of managing director. Despite the fact that the firm is now worth seven times the price he sold it for in 2010, he is confident that the sale was timed almost perfectly. The exchange provided the business with the necessary propulsion which facilitated this growth, making his original 100% stake less valuable than his current 25%.

Though, not all business owners are afforded such flexibility in terms of timing. The owner of a health and fitness business in southern England – who shall remain anonymous due to the enterprise presently being on the market for £65,000 – is hoping to sell for £100,000.

The decision to sell, she said, was due to personal circumstances. This was having such an effect that her business was beginning to lose money. Her parents were suffering from serious illness and she needed to spend more time with them, she informs.

Following two decades in the corporate arena, she decided to change direction entirely and purchased a business running two gyms and a fitness studio, along with an office in leasehold premises. She was then hit with a nasty surprise however, as unbeknownst to her at the time, the recession was imminent. With her clients also feeling the credit crunch, many stopped coming. She saw revenue drop by 60%, forcing her to lay people off and reduce her premises to a single gym, achieving a 55% reduction in costs, she said.

A downsizing project can sometimes be a blow to the ego, but it is a bittersweet pill indeed. Now her business has undergone rejuvenation and regained stability, it is once again profitable and exhibiting growth potential – a good time to seek a buyer.

To summarise – WHY STRATEGY IS EVERYTHING!

So you are coming to the end of the article, and you now have everything you need to succeed in finding the best deal for your business. Now I am going to reinforce a few points and clarify exactly why it is so vital to strategise effectively.

Like anything in life – when it comes to selling a business, you get out what you put in.

It is not pessimism to prepare an exit strategy early on, rather, the opposite is true. It is the hopeful business person who aims to succeed in the face of adversity. Even if you are nowhere near the point of selling, experienced entrepreneurs will tell you that having a strategy to sell up and get out should the time arise, is not only sensible, but essential.

Melanie Luff from businessforsale.com has this to say; “Although it may seem odd to pre-empt the end – and plan your departure as soon as you start – the ideal addendum to any good business plan should be a solid exit strategy”.

An incorporated exit strategy is what distinguishes a good business plan, from a great one. According to a publicly funded organisation in Scotland known as Business Gateway; “a well thought-out exit strategy can help you maximise the value you get and successfully market your business to potential buyers”.

Many people who start their own business will develop a personal attachment to it that will not be felt by those looking to purchase it from you. It is important then, to ensure that the business is capable of flourishing independently of your involvement. The trick is knowing exactly when it is the right time to let go…as holding on for too long, could actually harm the business and reduce its value.

One Mr Herd, who works for a Sussex University-owned centre that develops ambitious companies, advises that the best plan of action is not always to the owners liking. He informs; “The person who founded the firm can often be the wrong person to continue its growth as the ambition of the idea may be greater than the ambition of the founder”. It can still be a painful decision to pass the torch, even if you know the new owner can take the business to new heights.

It is advisable to stop viewing the business as your baby and start seeing it as an asset, which will allow you to sell when the time is right as opposed to when it feels right. Your business may be at the peak of its attractiveness, with well in date patents – which is often where much value lies – and this could be the perfect time to let go. The takeaway message is to think logically and not emotionally here.

Another thing you must be realistic about is when you will receive your money, as it is not uncommon for the seller to be tied into a two or three year earn-out clause. Meaning you may have to remain within the company for a period of time, to ensure it maintains its current profitability. If it fails to do so, the agreed price can drop.

Although, as noted by Daniel Domberger, a partner at mergers and acquisitions specialist Livingstone, “if you are selling to retire, the last thing you want is to be locked into working there after the sale.” To prepare is essential, he added, and the strategising needs to begin early. “Give yourself a year at the very least” he says “regardless of business size.”

Employ the services of a reputable advisor who can analyse your circumstances. The information must be made available, such as assurances that the suppliers and contractors will stick with the new owners, as some have clauses that allow them to cut and run if ownership changes. This will reduce value.

Another critical factor is that you must continue running the business as well as running the sale of the business, do not let profitability slip in these crucial stages.

Furthermore, to reinforce what has previously been mentioned; be transparent about why you are selling. If it because your business is failing, buyers deserve to know this information – and they will find out regardless. Honesty is the best policy.

Lastly, do bear in mind…

Selling a business is difficult

The information offered in this article on how to sell a business in the UK, is generalised and useful for any deal in any sector. Though you must not underestimate the complexity and stressfulness involved in such transactions, not to mention the length of time it may take. Even a seemingly simple deal can present obstacles that must be overcome, and disappointment is always possible. This article will serve you as roadmap however, and is designed to convey the fact that selling a business is not an insurmountable task, just a tricky one that requires patience and a great deal of preparation.

Learn how Melville and Montague can help you sell a company, we help guide you through the entire process from preparation to closing the deal.