How to sell your business
How long does it take to sell a business?
There is no exact time period for how long it can take to complete the sale of your business. It can be influenced by the nature of your business, how attractive it is to prospective buyers, and how quickly you can come to an agreement on price. Once a deal has been made, due diligence must be carried out by both parties as well as any legalities with respect to the sale. Taking all of this into consideration, it should be expected that the sale of your business can take anywhere from 6 to 12 months on average.
How much can I sell my business for?
How much you are able to sell your business for depends on a number of factors:
- The value of your tangible assets such as land, property or inventory stock.
- The value of any intangible assets (which can be more difficult to put a price tag on) such as intellectual property or branding.
- How scalable the business is – your business may attract a higher valuation if your business methods can be easily replicated or there is a great demand for your products or services which a buyer can capitalise on.
- How integral you, as the owner, are to the business’ success – if your knowledge and skills are the sole reason for the success of your business, it may fetch a lower valuation. Whereas if these skills can be transferred onto new or existing employees, then the business is less likely to be viewed as a going concern and in turn, attract a higher price.
- The nature of your business – traditional brick-and-mortar-based businesses tend to have lower valuations due to the 'value of the business’ being heavily dependent on the current tangible assets. Whereas, for example, a tech startup is more likely to attract a higher valuation due to the higher potential for growth and scalability.
How to value a business to sell
There are 3 main methods for valuating your business:
- Price-to-earnings (P/E) ratio. First, you will need to calculate the net annual profit of your business by deducting any business expenses and taxes from your annual revenue. Accountants use EBITDA, which means Earnings before Interest, Tax, Depreciation and Amortisation, as the earnings figure to calculate the value of a business. This figure can then be multiplied by a multiple that is suitable to your business. For example, smaller owner-managed businesses can attract relatively low multiples. Whereas businesses with profits exceeding £500,000 can be valued anywhere from 4 to 10 times their post-tax profits.
- Entry cost. The entry cost is the cost that would be incurred by starting a business that is similar to yours from scratch. This is calculated by taking into account the need for any tangible assets such as raw materials, the cost of labour and any additional costs such as marketing costs. You can subtract any savings such as taking advantage of new, more efficient technologies or using cheaper suppliers from your costs. This figure can then be used as an approximate benchmark for the value of your company.
- Asset valuation. This method of valuation involves determining the price of your business assets after deducting any liabilities such as loans or obligations to suppliers. In order to do so, the Net Book Value (NBV) of the assets is used which is the initial cost of the asset minus any depreciation. It is a good idea to get up-to-date valuations on certain assets such as property, which may have increased rather than decreased over time. This is a slightly crude method of valuating a business as is does not take into account intangible aspects of the business, such as branding or reputation. Therefore, it is most appropriate for strong asset-based businesses.
Finding a buyer for your business
There are a number of websites where you can list your business for sale, or you could make a listing in a business newsletter within your industry. However, advertising that your business is for sale on your own can be difficult without also informing competitors and your staff members of your intentions, which could cause further issues. On top of this, a large portion of your time is taken away from the day-to-day running of your business, which is the last thing you want when you are trying to find a prospective buyer.
Therefore, it is recommended that you consult a business broker who will be able to find prospective buyers for your business in a discrete and professional manner, as well as providing an expert opinion on the valuation of your business to ensure that you are receiving a fair price for your life’s work.
Tax when selling your business
Capital Gains Tax
You may have to pay Capital Gains Tax (CGT) if the sale results in you making a profit on any business assets. The CGT allowance for the 2023/24 tax year is £6,000.
- Basic rate income tax payers pay CGT (on non-residential property) at a rate of 10% up to the basic rate tax band and 20% over this limit.
- Higher or additional rate income tax payers pay CGT at a rate of 20%.
It’s worth noting that there are certain tax relief schemes available to you when selling your business. The key one is Business Asset Disposal Relief (BADR) which allows an individual to pay only 10% CGT on the sale of their business assets up to the lifetime allowance of £1m. This is especially useful for couples who jointly own a business together as they can pay 10% CGT on up to £2m worth of assets.
How we can help
The process of selling your business should not be underestimated as there are multiple important steps which must be completed which, combined with the emotion of selling your life’s work, can feel quite overwhelming. That’s why it is important to start thinking about when you would like to sell your business in advance, keep up-to-date accounts to make due diligence and valuations quicker, and think about getting in touch with a business broker to coach you through the process and help make sure you are getting the best deal possible.
Before the sale of your business, it is recommended to enlist the help of a financial adviser to ensure you make the most of all allowances available to you before the sale. They can also help you with a well thought out plan to ensure the cash proceeds are invested in an appropriate manner to provide you income throughout your retirement, and to take advantage of any tax efficiencies along the way.
This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.
The Financial Conduct Authority (FCA) does not regulate tax advice.