How to Sell a Business (5 Simple Steps)

These 5 simple steps will help you maximising your returns when selling your business

Perhaps you've built a business, developed scalable systems, and maybe even patented the latest "gadget" or "technology" that's thriving in your industry. And though spectacular, you may want to sell it for a new investment, a chance to retire, or perhaps something else. 

Whatever the reason, you must know how to sell a business beforehand. This will save you many headaches and, most importantly, ensure you sell your business for a fair-market-value price. 

Step 1: Preparation & Planning 

First, you need to define your goals. You want to be clear about why you're selling your business. For instance, is it for new opportunities or retirement? Knowing this will help you with your valuation expectations and timeline. 

You then need to assemble a team. This team is one of the most critical steps in selling a business, and it usually consists of an accountant, a solicitor, and a business broker. 

Preparing Your Business 

When you have your goals and team sorted, you need to prepare your business so it can be sold. Ideally, you need to: 

• Resolve any debts, disputes, etc. 
• Ensure that your accounts are all up-to-date.
• Organise paperwork and data collection to pass it on to the buyer. 

Alongside this, think about a USP (Unique Selling Point). Why would someone buy this business from you? Have profits increased lately? Is the system scalable? How stable is the revenue, etc? 

Valuing Your Business 

A must-know tip when selling a business is getting the valuation right. You don't want to overvalue, and you also don't want to undervalue it.  

In the most ideal situation, you want to outsource the valuation of your business. A broker can give you a clear price. 

However, if you want to get a general understanding of the value of your business, you can use the price-to-earnings ratio (otherwise known as the profit multiplier). This can be a ratio of 1 to 10. 

Here’s some examples of a price-to-earning ratios score: 

• Small Company - Ratio 1 to 2.5 
• Medium-Sized Company - Ratio 2 to 7
• Large Company - Ratio 3 to 10

Therefore, let's say you have a construction company rated at a ratio of 2, which makes £200,000 a year, then you can sell it for £400,000. 

Step 2: Find the Right Buyer 

Next, you need to find the right buyer. Where you find this buyer will differ; however, it's usually either by direct sale, on a marketplace, or through a broker. 

A direct sale is anyone in your network of potential buyers. It could be suppliers, competitors, or maybe even employees. You can also hire a business coach to help with this. 

Alternatively, a marketplace is full of different businesses people can buy. For instance, you have BFS, Acquire, and Flippa.

Lastly is a broker. A broker has a list of potential buyers already. They're in charge of selling your business and they’re paid a commission for doing so. 

Step 3: The Due Diligence Process 

When a buyer is purchasing a business, they'll want to see very sensitive information, such as: 

• Financials (Profit/loss statements, balance sheets, etc.) 
• Operations 
• Contracts 
• Assets and liabilities
• And the customer base 

Before they look into this, you should get them to sign a Non-Disclosure Agreement (NDA) so they don't steal your information. 

Step 4: Negotiate and Close the Deal 

Next, you need to navigate the sale of your business. This involves presenting, negotiating, and closing the deal. 

First, you need to develop a "Head of Terms". This document outlines all the key terms, such as the price, structure, and timeline. 

With these Head of Terms, the buyer will review them, probably with a series of different people. After the review, you can expect a back-and-forth negotiation on the price, deal structure, warranties, indemnities, etc. 

After the final negotiation, you can create a Sales and Purchase Agreement (SPA). This is a legal document that your solicitor creates, and it simply finalises the sale terms. 

Once due diligence is satisfactory and the SPA is signed, the ownership and transfer of the business occur. 

Step 5: Post-Sale Considerations 

After selling a business, the work doesn't stop. You need to do a few more steps, including: 

Telling Your Staff 

Because of the Transfer of Undertakings (Protection of Employment) Regulations 2006, you may need to tell your staff about the change in ownership. And, of course, if the sale of the business includes redundances, a fair redundancy process is mandatory. 

Telling HMRC 

You'll also need to tell HMRC. Depending on whether you're a sole trader, partnership, or limited company, you'll have different responsibilities you need to undertake. 

Ongoing Support 

You may also want to provide the buyer with ongoing support for a few months. This will ensure a smooth purchasing process while helping the buyer get up to speed. 

As you can see, knowing how to sell a business is somewhat easy. The hardest thing is finding a buyer willing to purchase your business for what it's worth. 

You also don't need to go through these steps of selling a business alone. You can hire a business coach. A business coach can help you get the most from your sales, so business owners across the UK hire them. 

If you think you need the help of a business coach to help you navigate the sale of your business, use our find a coach tool to find your local business coach. Alternatively, for more business tips and advice visit our learning centre for free articles, videos and e-books.