Businesses are sold for a variety of reasons. Many entrepreneurs will register a company with the sole intention of selling this for a profit at a later point. In other cases, the owners may be retiring or simply deciding to sell to raise capital for other opportunities.
Regardless of the reason for the sale, there are several important factors to consider. We have provided some top tips for selling a UK business below.
Even if you have no intention to sell a company, planning for this scenario can be invaluable. A strong exit strategy can afford protection in all eventualities and can help you maximise the potential value of a sale.
Furthermore, when planning ahead you can set targets with regards to what you would like the value of the company to be in the event of a sale. This can act as strong motivation to achieve these goals which will benefit the company by default, even if you choose not to sell the company at a later date.
Complacency and a lack of future planning can lead to the downfall of your company if there are changes to your personal circumstances, the economic climate or product trends and demand.
Determine the Value of your Business
What is your company worth? After spending time and effort into a company it is easy, and understandable, for your perceived value of the company to be inflated. Overvaluing your company can put off prospective buyers and may lead to no sale at all, subsequently losing you any potential value if you do eventually exit the company.
Likewise, undervaluing your company and also lead you to lose out. Specialist second opinions and an unbiased approach to the valuation of your company can ensure you optimise your potential returns.
Review the Current State of the Market
What is your current market share? How successful are your competitors? These are important questions to ask. If there are few barriers to entry into a particular market then buyers would be willing to pay less for your company if it is comparatively cheaper to start a new company in the same industry.
Likewise, if the market is prosperous and there are many barriers to entry with trademarks or exclusive supplier agreements you can place a higher value on the company.
Review the Tax Implications
Once a company is sold the seller will likely be liable for capital gains tax. Similarly, there may be an opportunity to claim entrepreneurial relief in certain cases. We advise speaking to an accountant to ensure you are aware of the potential tax implications and any tax relief you may be eligible for.
Consider if it is the Right Time to Sell
Choosing the right time to sell is essential. The current economic climate and the health of the company can dictate whether it is the right time to do so. One clear and relevant example of this is the planned exit of the UK from the European Union. Uncertainty and a lack of confidence in the market can discourage potential risk-averse buyers even if the company itself is thriving.
On a similar note, if the economy is growing, potential buyers will be more willing to buy a company and it is likely the finance for this will be readily available.
The health of the company itself can also determine the optimal time to sell. A company on the downturn will be undervalued by potential buyers and vice versa.
It is becoming increasingly prevalent for entrepreneurs to register start-up companies with the sole intention of selling for a healthy profit at a later point when the company is flourishing. We can assist with registering your new limited company in the UK. Contact us today for assistance with this.