If you are considering selling your business, there are a lot of things you need to know before you are ready to sell. Here are 10 tips to help you get your business ready to be sold.
1. Set up your year ends
If you own more than one company, make sure they both have the same year end. If they have different year ends, it will be difficult to assess how your business performs.
2. Do not ignore your balance sheet
For many businesses, the balance sheet (Net Asset Value) can be more valuable than the Goodwill (P&L).
3. Maximise your profit
Even if it means an increase in your Corporation Tax, maximising your profit is an essential step to getting ready for sale. Every pound matters - and over the next few years this could be worth more at the time of sale. For the first £1m, this is currently taxed at only 10%.
4. Take your salary into consideration
Let us give you an example: You say that you are achieving a profit of £200,000. However, you have not accounted for how much you pay yourself, which is £75,000. This means that you’re actually making £125,000 profit. This will become clear during the deal, particularly if you are working extensive hours. Any offers you receive will reflect this, so you must factor any salaries into the equation.
5. Be honest with yourself
If you are not paying yourself properly and your business is making marginal profits, it means you are not making enough money. Even if it has potential to grow, this can significantly reduce the value of your business.
6. Do not employ any non-functional staff
Paying people who do not perform a function is actually a form of tax evasion. Some business owners employ family members too and any buyer will question whether they will remain at the business after it is sold.
7. Do not take any cash out of the business
Taking any cash out of the business or paying staff in cash is tax evasion. Credible buyers will steer clear of your business and there is a strong chance that this will make your business impossible to sell. In the best case, you’ll be reducing the value of your business. If it does sell, be prepared to sign up to at least 7-Year Tax Warranties. However, HMRC can go back even further than 7 years if they suspect fraud.
8. Adjust your profits for commercial rent
If you own commercial property that your business trades from but do not charge rent, then your profit may require an adjustment to account for commercial rent. There is an exception if the property is owned by the business, but please note that most buyers will be unwilling to invest in property.
9. Invest in succession management
If you manage your own business, it is difficult to keep it running smoothly once the business is sold and you have left. Buyers are more inclined to invest in your business if it has clear succession management in place.
10. Educate yourself on the sales process
You will be signing comprehensive warranties. Do some research about required documentations and familiarise yourself with the Due Diligence process.
If you are ready to sell your business, don’t hesitate to get in touch with us. Transworld Business Advisors of Peterborough will ensure the whole process is handled from start to finish, taking no upfront costs and operating on a no sale no fee basis. Call Eric Siecker on 01733 979037 or email esiecker@tworlduk.com.
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