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Selling a business

Before putting your business up for sale, you should give careful consideration to your reasons for doing so. You will probably be asked about your reasons for selling a business by potential buyers, who will need to be comfortable with your motivation.

Selling a business, whether in part or wholly, may be the best way to achieve your objectives. You might, for instance, want to sell your business outright, leaving you with no financial or management involvement.

However, there may be a range of other exit routes which better suit your needs. If, for example, you want to retire but already have enough money, you could pass the business on to your children. Alternately, you could look into selling a business to your employees.

How to sell a business

There are various ways that could see you selling a business. The options available depend on factors like the type of business, size and sector. Most businesses are sold in a trade sale to another business - usually to one operating in the same or a related field.

Other options available to you could include:

  • Finding a private-equity buyer
  • A management or employee buyout - perhaps with the help of a venture capital firm or bank loan
  • Attracting a private investor

1. Partial or full sale

You may want to sell the entire business or keep a small stake in it. The buyer may prefer that you retain partial ownership and continue your involvement. This can give the business continuity and the buyer confidence that the business will do well.

2. Sale of assets

Instead of selling a business whole, you could sell assets like equipment, intellectual property or your customer list. This may be attractive to a buyer who doesn't want to take on liabilities and obligations.

3. Immediate or phased payment

You can ask for payment in full when the sale is completed, or you can accept payment in installments. The buyer may well prefer to pay in installments, but you will be at risk, for example, if the buyer cannot make future payments.

Some buyers will want to make a series of payments based on profits, in which case you may be contracted to stay with the business for a period of time. This is often known as an 'earn out'.

Is a sale realistic?

You can only sell your business if someone is prepared to pay for it. If you can't identify strong, substantive reasons why your business would make a good acquisition, it's likely to be difficult to find a buyer.

It usually pays to start planning a sale well in advance. This gives you time to groom the business and learn how to sell a business professionally and swiftly, fixing any issues which could dramatically affect its value and making it as attractive as possible to potential buyers.

When to sell your business

Selling a business at the right time can have a significant impact on the price you get for it. It's also wise to keep your plans confidential until the sale is imminent. This will prevent a negative reaction from customers and suppliers and eliminate unnecessary worry for your employees.

The state of your business is a more important factor. Aim to sell when profits are increasing and look likely to grow further. Consider the impact of sales cycles or seasonal fluctuations in your business - you might have fuller order books at a particular time of year.

Show strong financial performance

Planning well ahead will help you to ensure that your business has a financial record that attracts buyers. The first step is to ensure that your finances are in good order. This should be always be the case, but planning to sell your business can put a spotlight on this area.

You will want to present your accounts as attractively as possible, as buyers usually prefer businesses that show increasing profits year on year. If possible, keep your financial performance reasonably stable throughout the year.

Good realistic sales forecasts that are supported by evidence, will help to increase prospective buyers' confidence in your business. A full order book is always a good sign.

To maximise short-term profits, you can reduce longer-term investment. You might want to avoid expenses like advertising heavily or taking on new staff, but avoid excessive cost-cutting. You need to maintain spending in essential areas, otherwise the business could suffer and drive the price down.

Streamline your business operations

The more confidence a buyer has in your business, the more attractive your business will become and the higher the price they are likely to offer. It's essential to set out a clearly-defined strategy in your business plan. You also need to show that you have got a strong management team in place.

Throughout the sale process, continue to demonstrate that you will be flexible and co-operative. Show that you would also be willing to spend some time after the sale helping the buyer get acclimatised to the business. If you think it will help the sale, be prepared to work for the company for a fixed period after the sale is completed.

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