Selling your business

Planning your exit strategy may help you achieve a better price when selling your business.

Whether you’re seeking to sell your business in order to retire, or want to use the capital released to build another business, the process can be a stressful and complicated affair.

But don't worry, as advice is available from brokers and specialists in mergers and acquisitions (M&A) transactions. Read on to find out more.

Any potential buyer will certainly want to know why you are selling your business.

It’s common for an owner to sell a business for one of more of the following reasons:

  • Retirement
  • Illness
  • Board-level disputes
  • A need to raise capital

While some owners will consider selling a business that's unprofitable, this is likely to make a sale more difficult.

Selling your business might be easier if you can show evidence of:

  • increasing profits
  • increasing turnover
  • strong cashflows
  • a wide and growing customer base
  • good visibility on forward contracts

Preparing your business for sale helps in giving you the best possible chance of getting a higher price for your business. This will include planning the right exit route beforehand.

It may be that now isn’t the best time to sell your business and you may need to wait to obtain what you would consider a realistic price.

Before you begin the process of selling, you can consult other business owners on their thoughts, as well as asking brokers and corporate finance experts for their advice.

There are several possible exit routes, including:

  • a trade sale
  • a full or partial sale to private equity investors
  • a sale to a family office or high net worth individual
  • a flotation on the stock market
  • refinancing
  • setting up an employee ownership trust

A trade sale

According to Peter Gary and Andrew Jeffs, partners at Cavendish Corporate Finance (part of the FinnCap group) and authors of 'The Definitive Guide To Selling Your Business', a trade sale:

“...offers the greatest prospect of 100% cash-out and the opportunity for you to leave the business, particularly if the trade buyer is a competitor and will absorb your company into its existing organisation.”

Gary and Jeffs also state that another feature of a trade sale is that the due diligence process is typically less onerous compared to a private equity transaction.

Private equity

A transaction with a private equity house will often involve a partial sale, as management shareholders will typically be asked to reinvest a proportion of their sale proceeds into the acquiring company.

According to Peter Gary and Andrew Jeffs, a private equity transaction:

“suits an owner manager who wants to de-risk his wealth position by taking some money out but would like further investment to expand aggressively (organically or through acquisition) in order to build a much larger and more valuable business.”

Family office or high net worth individual

This is similar in many respects to a private equity transaction.

A flotation

A stock market flotation can be an opportunity for a business owner to achieve a full or partial exit. In bull markets (financial markets in which prices are rising or expected to rise), there may be the opportunity to achieve a higher valuation than via a trade sale.

Refinancing

A refinancing with bank debt is when your business takes on debt supported by the company’s stream of profits, then distributes the proceeds of the refinancing to shareholders via a share buy-back.

Setting up an employee ownership trust

This is when you sell the business to your employees and an employee ownership trust (EOT) holds the shares collectively on their behalf.

Provided you meet certain rules, transferring a controlling stake in your business to an EOT can give you relief from any capital gains tax that you might otherwise have to pay. Consequently, this can significantly increase the effective value of the sale to the outgoing shareholders.

Learn more about EOTsLink opens in a new window

Before choosing your preferred exit route, you should decide whether exiting the business is even a viable prospect for you.

An exit may not be viable for a number of reasons, including the following:

  • The business relies on you (as owner) or a single customer
  • The business has a flawed business model due to a permanently changed market
  • A setback due to conditions beyond the business' control
  • Holding off the sale may bring about a more reasonable valuation once you've remedied certain issues

Someone acquiring a business will typically value the company in either of the following ways:

  • By a multiple of normalised earnings
  • Discounted cashflows

Of course, in practice these seemingly simple calculations are affected by a range of assumptions and projections. It may make sense to seek expert advice on how to obtain the best sale price.

As a business owner, you have responsibilities both to your employees and to HMRC when selling your business.

Visit GOV.UKLink opens in a new window to learn more.

 

Cavendish Corporate Finance – The Definitive Guide To Selling Your Business Link opens in a new window

This book aims to demystify the sale process and help you achieve the best possible outcome when selling your business. It details each stage of both the exit planning and sale process, illustrating key messages with real life examples of successful company sales.

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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.