Question 1

What is the step by step process to selling a business?

Accepted Answer

There are six stages owner managed private businesses should follow to optmise the possibility of selling a business in the UK.

Stage 1: “Fit to Sell” and “Fit for the Future”. This is an often overlooked step in the process as many want to dive straight into finding a buyer. At this stage we focus on understanding the business and preparing it for sale, ensuring that the strengths and core competencies are highlighted as key value drivers to ensure you get the most from the deal. However it also identifies weaknesses to rectify and opportunities for improvements to make sure problems don't suddenly appear and cause issues further into the deal process when they can be much more difficult to fix and often cause deals to fall through.

Stage 2: Research to identify prospective buyers. This is where we focus on understanding what type of business would suit your business best as well as understanding the market as a whole and how you fit in it. Dexterity Partners’ approach to solving this problem is to use its own software whose algorithms are designed to produce a list ranking Buyers with closest fit to the Sellers business.

Stage 3: Marketing and buyer verification. This is when we start to contact prospective buyers, understanding the response in the market and making sure we are in contact with those businesses that fit with your business best. It is now that we start to get indicative offers.

Stage 4: Bid qualification and key terms negotiation. It is at this stage when the offers are on the table and it is time to negotiate. The aim is now to ensure you get the best offer that suits your goals. It is at this stage a Buyer requires exclusivity in the sales process for a period of time.

Stage 5: This is when Due diligence is undertaken. It is a term to describe the investigations a Buyer and its advisers will perform to satisfy itself of the quality of the business. The focus is usually on confirming that everything they have been told is correct whilst also ensuring the opportunities they have identified can be achieved in the future under its ownership.

Stage 6: This is when all the negotiations are formalised into a legal structure. The terms are finalised and it cumulates in the SPA being signed and the business being sold. If the previous stages have not been carefully followed or your legal advisers not involved and consulted from Stage 1 then this can create tension, delay or the collapse of the deal as critical commercial and legal issues surface at the last minute.

Question 2

What is the best place to sell a business?

Accepted Answer

There are many options when considering the best place/organisation/channel to sell a business.

Corporate Finance functions either in standalone firms or part of large accountancy firms are often a first port of call for many as they are often familiar with the firms from other dealing with them. They usually focus more on the advisory element and due diligence once a deal is in place rather than the actual process of finding a buyer and prefer deals with a buyer already in place, which is often not the most helpful for many for whom that stage is key.

Sales agents/brokers are another place to go to sell a business. These often focus on finding a Buyer via large scale direct marketing campaigns. The key here is trying to just contact as many people as possible.

The simplest option is to subscribe to a website offering to list your business. This is more of a lucky dip gamble. If an interested party is found via this approach there is still the need for a Seller to find advisers to negotiate, manage due diligence, provide financial and taxation advice. Then legal advisers are required to establish non-disclosure agreements, Heads of Terms and a Sale and Purchase Agreement. This low-cost website listing option can soon run up significant costs from a number of other advisers.

When deciding what is the best place to sell a business it is essential to first invest in a clear pathway to maximising the probability of a successful sale and optimising the business value. Putting the business itself in its best place is as important as finding who or whereis the best place to sell. This is an investment not a cost, and an experienced adviser who can help to avoid the pitfalls and own the problems is invaluable.

Question 3

How long does it take to sell a business uk?

Accepted Answer

Selling a business in the UK can take a few months to a few years! There is no standard time it will vary for every business. The key factors are whether the business is ready to be sold (is it “Fit to Sell”), is there already a buyer or interested parties lined up, the desire of the buyers and sellers to do a deal quickly and finally quite simply how organised and efficient everyone is.

The best way to look at the time frame is to split the process up in the different stages and how long each one can take. Firstly, the preparation to sell, “Fit to Sell” stage is often overlooked but this alone can take anywhere from no time at all if everything is perfect to a year if the business needs a longer term project to get everything in shape. However usually this takes a few weeks. The next step is the most uncertain, finding a buyer and getting the offer you want. Unless you already have a buyer lined up or have been approached, in which case job done, this process can take just a few weeks to many months and perhaps never as many businesses never actually find a buyer.

Once you have an offer then its onto the due diligence and legal completion. Everyone thinks and wants this to be quick and easy, and it can be, but it is wise to expect that this will take a couple of months to complete as no matter how quick you are, the buyer’s side usually wants to take their time to ensure everything is covered and checked thoroughly. Therefore overall it is usually a process that takes from somewhere from 3 or 4 months on the really quick end to up to year on the slower end of things, but most deals tend to fall somewhere in the 6/7/8 months range when every stage is factored in.

Question 4

How do you know when to sell your business?

Accepted Answer

Knowing when the time is right to sell your business is a very personal decision that really only you can decide. For some there is a change in personal circumstances that drives the need to sell, others it is retirement or perhaps they want to move on in this chapter of life and pursue a new path but finally for many it is simply that the financials make sense.

Often the owner gets approached and the offer they feel is too good to turn down. Regardless of the exact reason, the decision must be yours, no one can tell you when the right time is. You must decide yourself.

Question 5

How do I prepare my business for sale?

Accepted Answer

Fail to prepare, prepare to fail, a little cliched but still it holds true. Which is why at Dexterity Partners we undertake a “Fit to Sell” review at the start of the process to put the business in the best possible position going into a sale. The key aspects that need to be considered to ensure that the maximum is achieved from a sale are

There is a sustainable business model which has constantly generated profits and sales.
The business is not dependent solely on the owner and has a strong management team.
Being able to prove your key attributes with facts not opinions with data rich evidence.
Ensure all legal and tax issues have been considered.

The preparation that will generate the greatest value is if you can show a strong past performance, have a clear vision of future opportunities and demonstrate you have the core competencies to achieve these opportunities to potential buyers. Read more about preparing you business for sale.

Question 6

How much should I sell my business for?

Accepted Answer

Knowing how much you can sell your business for is one of the most important factors to consider when deciding to sell your business. After all, the amount can be the deciding factor as to whether you sell or not. However knowing what someone will pay for your business or how they reach that figure is often not well understood.

Valuing your business can be like valuing your favourite painting or antique. It is unique and is only worth what someone else is willing to pay for it.

Let’s start with the worst case, the minimum you could expect to receive is the market value of the assets owned by the business. This is effectively the closing doing value.

The most common approach though is the follow the below formula as a baseline,

Normalised EBITDA x multiple (general + specific characteristics of your business) + free cash less debt.

Question 7

What multiples are businesses selling for in the past few years?

Accepted Answer

Essentially the amount of profit the business generates multiplied by a “multiple” which is kind of like saying the profit a number or years, the number of years being the multiple, is the value.

In most cases the multiple falls in the 3-7 range with smaller businesses falling on the lower end and larger, stronger, more proven businesses on the higher end. At the end of the day however, each business is unique.

Question 8

Do you pay capital gains when selling a business?

Accepted Answer

Usually when you take out money from your business and it is trading you will either pay tax on your income either as income tax or on dividends tax. The company pays corporation tax. However, when you sell your business, it is subject to capital gains tax ( “CGT), currently 20%.

There is a reduction to 10% for the first £1m of CGT if you have a qualifying business. This lower 10% is often referred to as Entrepreneurs’ Relief but was renamed as Business Asset Disposal Relief (“BADR”) in 2020.

Question 9

How to sell a percentage of your business?

Accepted Answer

Selling a percentage of your business of often very similar to selling the entire business in the process you have to go through, the difference being that at the end you still own part of it. The main factor is whether you are selling a majority of the shares or a minority. If you are selling a majority this usually indicates that you will be losing overall control of the business and the new owner has control. If you sell a minority you will keep overall control.

Question 10

What happens to cash when selling a business?

Accepted Answer

A business when sold will either have cash in the bank or borrowings. Most sales proceeds usually come from a valuation framework. This framework is as follows:

Proceeds of sale = EBITDA x multiple of EBITDA + free cash – debt / borrowings.

The treatment of cash and debt/ borrowings in the business at the time of sale is either added (cash) to or deducted from (debt) to the enterprise value (EBITDA x multiple). There are various definitions of debt used but in simple terms it is all bank or other funder loans , invoice discounting, corporation tax and occasionally finance leases. The resulting cash free / debt balance must be then compared to the normal working capital requirements of the business. Working capital is debtors + stocks – trade and other creditors.

Finally, the seller is usually liable for the corporation tax due up until the date of sales. This is either deducted from the sales proceeds at completion of the deal or the seller has to pay this when it is due.

Question 11

Who gets the money when a company is sold?

Accepted Answer

The money received from the sale of the company goes to the shareholders usually in equal amounts unless the shareholding has different types of shares.

The payment of the sales proceeds of the business may be affected by any debt or borrowings in the business which needs repaying first. Additionally, corporation tax liability due up to the date of completion is normally deducted from the consideration received.

Blog

How to sell a business in the UK – Step-by-Step Guide