Selling a business: what you need to know

  1. Pound notes in wallet
    Ray Newman

    Ray Newman UKBF Regular

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    14 |

    It’s never simple to break up, but sometimes, it’s for the best. Maybe you’re moving on to a newer, sleeker model, or maybe you just need to move to the seaside for a nice quiet life. It could be a long-planned move or retirement, a change of focus or a new business venture that needs all your time and attention to make it fly. 

    Either way, you’ve come to that difficult decision – it’s time for you and your business to go your separate ways. 

    But what happens next? You’ve sunk years and probably a few grey hairs into getting your current venture up and running, and you’d like some of that investment back. Where to start on this potentially complex and confusing process?

    Your first instinct might be to pull a figure out of the air and say that’s what you’d like for the business, what you feel your hard work has been worth. But before you jump the gun, you need to think in a bit more detail. 

    For a start, what are you actually selling? The name? The brand? The lease on the premises, and the staff that work there? The particular recipe of lemonade that none of your competitors have? Do you own the premises, personally, or does the company? Does the company have debt attached? 

    Not only will you need this information set out clearly so that you (and your solicitors and accountants) can make an accurate valuation, but potential buyers also need to know what they’re getting. Being really clear about what’s on offer at this stage can save a lot of messiness, not to mention legal fees, further down the line. 

    Remember, what you’re selling is what they can get from the business, not the time you’ve sunk into it. That time you had to come home from the family holiday because the freezers flooded might’ve been worth something to you, but it won’t be worth anything to them. Is it hands-off, or does it need babysitting? Is it a brand, a nine-to-five job, or an all-consuming passion that needs attention 24/7?

    Either way, to pass on the right information, and to meet your legal obligations, you’re going to have to make sure all your records are in order. 

    We’re all familiar with those annual and quarterly deadlines, the annual accounts, VAT returns and so on. But it may be that you have to have all this right up to date, rather than waiting for the deadlines, to make sure you pass over the right information to any new owner, and tie up any loose ends. VAT numbers can be passed forward in a business sale, but just make sure HMRC has all the information on what you’re liable for, as well as the date in which the business passed out of your hands. 

    Most importantly, you’ll need to consider what happens to any staff you employ. You’ll need to think carefully about what rights they have, how these may impact the sale, and any employment-related liabilities that the new owners may have to take on. These will vary according to whether the staff have been with you more than two years, and what type of contract (casual, permanent, etc) they’re on. 

    Normally, when a business is sold, staff contracts pass forward to the new employer under what’s known as a TUPE (Transfer of Undertakings, Protection of Employment) process. 

    However, there’s nothing to stop you offering employees a redundancy package – in a small business there may be staff who’ve been with you for years, and don’t want to adapt to a new boss. Even so, you need to conduct the process correctly, with appropriate notice and timescales. 

    For those members of staff who don’t want redundancy, their employment will almost certainly come under TUPE regulations. This can be complex, so it’s good to talk to someone who understands employment law before agreeing anything with the new owners. 

    All of this – preparing the records, working out the status of employees and the value of assets and liabilities – can be a time-consuming process. Mistakes or revaluations can scupper a sale you’ve already sunk time and energy into. So it’s really important to do two things: first, get professional advice, and second, draw up a timescale for moving through the different parts of the sale process.

    Selling a business is a job in itself. You may reap the rewards if you do it right, but live to regret it if you get it wrong. The more preparation you do the smoother it’ll go. Sometimes it really is time to break up with your business, but leave it nicely – after all, you’ve given it years of your life.

  2. Clinton

    Clinton UKBF Legend

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    Ursula, do you work in the industry or are you a writer for hire ie. someone gives you a topic and you go research it and put an article together?

    You've got some good information up there but this had me smiling:
    There is no such thing as an "accurate valuation"! Find me a solicitor (?!) or accountant (or business broker) willing to provide an accurate valuation and I'll show you a con artist.

    Also, this:
    No, it doesn't! (Under certain conditions and in a certain type of sale TUPE applies, but the most common way to buy a business - the sale of shares - doesn't leave you with TUPE liabilities.)

    One thing is certain, selling a business is a complex affair and you need to have good advisers - son't believe everything you read on the internet ;) - or you are highly likely to end up deep in brown stuff.
    Last edited: Feb 26, 2020
    Posted: Feb 26, 2020 By: Clinton Member since: Jan 17, 2010
  3. Ray Newman

    Ray Newman UKBF Regular

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    Oops. Uploaded this one with the wrong byline.

    Clinton -- this is only intended to be a broad overview and an introduction to the topic, based on a request from a forum user. But don't worry, it's right there in black-and-white: "get professional advice"!
    Posted: Feb 27, 2020 By: Ray Newman Member since: Dec 13, 2018
  4. Clinton

    Clinton UKBF Legend

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    Actually, they can do one thing before even getting professional advice.

    That's going and doing a bit of research to decide if their business is even worth selling. Most small businesses going to market - circa 95% - do not find a buyer.

    One man bands = bad news. That's a job, it ain't a business.
    Other small businesses highly dependent on owner = still mostly a job
    Not making a few tens of thousands in profit after paying the owner a fair market wage? Still not worth the time and trouble for most buyers.

    Having a business and having a sellable business are two very different things. If you don't have the latter don't bother paying a professional to sell your business. In fact, specifically do not pay that dodgy business broker his retainer or "marketing fee" to put your business up for sale.
    Posted: Feb 27, 2020 By: Clinton Member since: Jan 17, 2010
    The Byre and FrontierMan like this.
  5. Chris Coulson

    Chris Coulson UKBF Newcomer

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    One thing you haven't addressed, is where might you advertise your business for sale? How on earth would you find people who want to buy businesses?
    Is there an Exchange and Mart for businesses? :)
    Posted: Feb 28, 2020 By: Chris Coulson Member since: Dec 30, 2015
  6. KeithGreen

    KeithGreen UKBF Big Shot

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    Yes there are several online resources for selling your business. Here's a few of the main ones, others are available.

    Interesting statistic from Clinton above and not sure where it comes from. My success rate over the last 4 years has been 62%, even more if you discount the clients who didn't sell because they withdrew from sale early (testing the water, lease coming to an end, decided not to retire yet etc.).
    Posted: Feb 28, 2020 By: KeithGreen Member since: Jun 25, 2008
  7. Clinton

    Clinton UKBF Legend

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    I have the world's most comprehensive list here. But those locations are all pretty rubbish. You get mostly tyre kickers and time wasters and people looking for a cheap deal - the worst of the buyers there are out in the market. If your business is a decent size there are other options far superior to these portals.

    KeithGreen, you won't believe the data I've got on the market. I've got the biggest bot operation going which scrapes all the listings from all the main portals on a daily basis. I'll publish some of that data later in the year. I can filter, for example, how many existing listings are being terminated every month. (Not all listing terminations are sales. But, trust me, the number of actual sales is miniscule. )

    The UK's biggest business broker is KBS. Here's my analysis on what percentage of businesses they actually sell (spoiler alert: just under 5%). This is the broker with the biggest clout, the biggest ad budget - a listed company with hundreds of employees. But their success figures are in line with the rest of the market when it comes to small and micro businesses.

    Numbers vetted by whom? I'm always uncomfortable with brokers quoting their own success stats. I'm sure you're a good guy and quoting what you feel are accurate numbers, but here's what I say to people about "success rates".
    Last edited: Feb 29, 2020
    Posted: Feb 28, 2020 By: Clinton Member since: Jan 17, 2010
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  8. KeithGreen

    KeithGreen UKBF Big Shot

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    Thanks Clinton. A "good guy", that's a little patronising isn't it? True though!
    I've read your comments about success rates. I'm happy with my claim and methods of calculation, but feel free to drop by and check for yourself.
    As you say it's about choosing the right broker for your business. The right ethics, the right size, the right approach and so on.
    Posted: Mar 6, 2020 By: KeithGreen Member since: Jun 25, 2008
  9. Clinton

    Clinton UKBF Legend

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    Just to be clear, I don't know enough about you to have an opinion on whether you're a "good guy" or a "bad guy"! So don't go quoting me on that. ;)

    Thanks for the invite to check your numbers but I'm washing my hair this weekend. Maybe some other time? :)

    Yes, horses for courses. People need to invest the time to do the research and not go on whatever claim the broker is making about their success rates, average multiples or the size of their "buyer list" (which could be a £5 mailing list they bought off eBay!). Vendors need to keep their eyes open and be very alert. The ones who didn't lived to regret it.
    Posted: Mar 7, 2020 By: Clinton Member since: Jan 17, 2010
  10. KeithGreen

    KeithGreen UKBF Big Shot

    640 203
    Ray Newman I hope this thread has produced the responses you were after. If anyone has read it and has specific questions then please post them on here and I'll try to answer.

    Here to help (if I can).
    Posted: Mar 9, 2020 By: KeithGreen Member since: Jun 25, 2008
  11. Clinton

    Clinton UKBF Legend

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    Last edited: Mar 9, 2020
    Posted: Mar 9, 2020 By: Clinton Member since: Jan 17, 2010
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  12. The Byre

    The Byre Full Member

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    Having been through the process, I can honestly say that everything I read and hear from brokers and other people who seem to think that we need to have all their bumpf shoved through our letterbox is as far removed from reality as it is humanly possible to be.

    I realise that SMEs make wonderful targets for charlatans and spivs touting all kinds of bogus and unnecessary services, such as advertising in non-existent publications, business brokerages telling sucker micro-businesses that they are worth hundreds of thousands, HR advice services that always tell the business to settle and of course the never-ending stream of chancers running up debts and then doing the old 'White-Eared-Elephant'. But there seems to be a grey area where services are just barely legal.

    The truth is that a company with a less-than seven-figure turnover is not really worth that much, if anything because of risk and dependency on one or two people. For such small enterprises, their only hope of salvation is for the business to own something of value. It can be a building, or intellectual property such as patents or trademarks, or a valuable list of customers or even suppliers. It can be valuable contracts or key know-how that is difficult to replicate.

    This whole UK brokerage scene is one I have fortunately never had to deal with - but looking at it from the outside, boy but do they make my foot itch - especially if I am wearing workboots!

    Sadly, this 'industry' is just another set of parasitic creatures (in my opinion) that are preying on micro-businesses because those running such businesses or seeking to run such businesses are clueless. A fool and his money!

    One day, just for fun, I shall use my background in economics to come up with a real formula for calculating the value of a business. Creating a formula that takes size, turnover, equity, turnover variations, and liabilities into account could prove to be a funky and fun bit of nonsense - though of course, it would only be an idiot's guide or a fun thing to mull over on a wet afternoon. As @Clinton states, a serious and accurate valuation is either a pipe dream or the opening gambit to taking money away from a business owner and stitching them up like a kipper!

    But such a formula could be a useful tool as a discussion point, prior to reaching a more realistic figure.
    Posted: Mar 12, 2020 By: The Byre Member since: Aug 13, 2013
  13. Clinton

    Clinton UKBF Legend

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    Actually, what you say is true but only in the bottom of the market, the sub £1m/£2m deals. There are a few good guys in that market but they are hard to find.

    In the £5m+ market the UK has some of the world's top talent. I speak with these people all the time and I'm amazed at how much they know and how clued up they are. Believe it or not, these highly competent and professional firms make up the bulk of the broker market in the UK!


    There are hundreds and hundreds of corporate finance firms, M&A boutiques and all kinds of other advisory firms that do essentially what business brokers do - they sell businesses. But they're in a different league to what you'd find with the brokers who cold call you or the brokers you find in Google.

    They are all highly qualified, senior people in their fields with ICAEW being the very minimum qualification. They are Rule 3 advisers, LSE nomads, Designated Professional Bodies usually with FCA / FINRA (SEC) / ESMA stamps of approval ie. regulated firms with in-house legal and tax expertise, members of international legal and corporate finance networks....

    I'm not saying none of them will fiddle you - where there is big money there will always be bad players - but they aren't anything like your average business broker.
    Posted: Mar 12, 2020 By: Clinton Member since: Jan 17, 2010
  14. bodie007

    bodie007 UKBF Newcomer

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    Businesses going up for sale can find their value affected if they have not complied with GDPR regulations
    Posted: Mar 21, 2020 By: bodie007 Member since: Jul 4, 2008
  15. Clinton

    Clinton UKBF Legend

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    That's like saying an aircraft carrying passengers needs to have a toilet.

    Yes, it needs a toilet. But it's also kinda important for the plane to have wings. And a pilot. Landing gear would be nice. Some fuel maybe?

    GDPR is one of a 100+ items that determine value.
    Posted: Mar 23, 2020 By: Clinton Member since: Jan 17, 2010