If you’re thinking of selling out your business in the UK, you might be wondering how long the process will take and what steps you need to follow. Selling out a business is not a simple transaction, but a complex and often emotional journey that involves legal, financial, and personal considerations. In this article, we’ll give you an overview of how to sell out a business in the UK, from setting your objectives and expectations to closing the deal and moving on.
How to Sell Out a Business in the UK
The following steps will guide you on how to sell out a business in the UK:
Set Your Objectives and Expectations
The first step to take to sell out a Business in the UK is to be clear about why you want to sell and what you hope to achieve. Are you ready to retire, start a new venture, resolve a partnership dispute, or exit a declining market? Your reasons for selling will influence your timeline, valuation, marketing strategy, and negotiation tactics.
You should also be realistic about how long it will take to sell your business. According to experts, a typical deal can take six to nine months, but it may take longer depending on the size, complexity, and attractiveness of your business. Consider the time required to prepare your business for sale, including improvements, issue resolution, account updates, and responsibility transfers.
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Prepare Your Business for Sale
The second step to take to sell out a business in the UK is to make it as appealing as possible to potential buyers. This means showcasing its strengths, potential, and profitability, as well as addressing any weaknesses, risks, or liabilities. Here are some tips on how to prepare your business for sale:
- Build a strong team and corporate structure that can operate independently of you
- Fix or replace any broken equipment and tidy up the premises
- Settle any disputes with suppliers, employees, or clients
- Get all your contracts and leases in order and ensure they are transferable
- Reduce your expenses and increase your profits
- Prepare up-to-date accounts and financial statements
- Speak to advisers (tax, legal, and accounting) on possible deal structures and tax implications
Value Your Business
The third step to take to sell out a business in the UK is to determine how much your business is worth. This is not an exact science but an art involving various methods, assumptions, and negotiations. You can use different approaches to value your business, such as:
- Asset-based valuation: based on the net value of your assets minus liabilities
- Income-based valuation: based on the present value of your future earnings or cash flow
- Market-based valuation: based on the prices of similar businesses that have been sold recently
You can also get an independent valuation from a professional appraiser or broker who can provide an objective and credible opinion. However, remember that the final price will depend on the market conditions, buyer interest, and negotiation skills.
Find a Buyer for Your Business
The fourth step to take to sell out a business in the UK is to find a suitable buyer who is willing and able to pay your asking price. You can use different channels to market your business, such as:
- Business brokers: specialists who can help you find buyers, negotiate terms and facilitate the deal
- Online platforms: websites that list businesses for sale and connect sellers with buyers
- Personal networks: contacts who may be interested in buying your business or know someone who is
- Trade publications: magazines or newsletters that target specific industries or sectors
Create a sales brochure showcasing business features and benefits. Use a confidentiality agreement to safeguard sensitive information. Screen and share details selectively with qualified prospects.
Negotiate the Deal
The fifth step to take to sell out a business in the UK is to negotiate the best possible deal with the buyer. This involves agreeing on the price, payment method, terms, and conditions of the sale. Conduct thorough due diligence on financials, legal status, and reputation. Prepare to address buyers’ questions, provide evidence, and alleviate concerns.
You should also seek professional advice from your solicitor, accountant, and tax adviser before signing any contracts or agreements. They can help you review the documents, ensure compliance with regulations and minimize tax liabilities.
Close the Deal and Move On
The final step to selling out a business in the UK is to close the deal and complete the transfer of ownership. This may involve:
- Signing the sale agreement and other legal documents
- Paying or receiving the agreed amount (in full or in installments)
- Handing over the keys, assets, records, and contracts
- Transferring the VAT registration number (if applicable)
- Informing your staff, customers, suppliers, and other stakeholders
- Providing training or support to the new owner (if agreed)
- Canceling or transferring any insurance policies or licenses
Once you have closed the deal, you can celebrate your achievement and move on to your next chapter. You may also need to pay capital gains tax on any profit you made from the sale unless you qualify for any tax reliefs. You should consult your tax adviser for more details.
Selling a business in the UK is a significant decision that requires careful planning, preparation, and execution. It can be a rewarding and satisfying experience, but also a challenging and stressful one. By following the steps outlined in this blog post, you can increase your chances of finding a buyer, securing a good price, and completing a successful sale.
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How much tax do you pay when you sell a business in the UK?
Selling out a business in the UK can be a rewarding and profitable venture, but it also comes with some tax implications. Business type and size determine tax variations on sales, including capital gains, income, and corporation taxes. Here is a brief overview of what taxes you may have to pay when you sell a business in the UK.
Capital gains tax
Capital gains tax is payable on any profit that is made from the sale of the business. If you are a UK resident, you will need to pay capital gains tax on the sale of your business through your self-assessment tax return. The tax return must be filed within 12 months of the end of the tax year in which the sale took place.
The amount of capital gains tax you pay depends on your allowance, your taxable income, and the type of business asset you sell. You may be able to reduce your capital gains tax bill by claiming Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief.
Business Asset Disposal Relief allows you to pay a lower rate of 10% on the first £1 million of gains you make from selling a qualifying business or business asset. To qualify for this relief, you must meet certain criteria, such as:
- You are a sole trader or partner selling part or all of your business or its assets, or
- You control at least 5% of the company’s net assets which you are selling and are entitled to 5% of its distributable profits
- You have owned the business or asset for at least two years before the sale
- You sell the business or asset within three years of closing down
Any gains above the £1 million threshold are taxed at the normal rate, which is 20% for higher and additional rate taxpayers and 10% for basic-rate taxpayers.
If you sell out your business as a sole trader or partner, you may also have to pay income tax on any income or profits that you receive from the sale. This could include:
- The final trading profits of your business
- Any cash or stock dividends that you receive from the company
- Any salary or bonus that you receive from the company
- Any interest that you receive from lending money to the company
The amount of income tax you pay depends on your allowance, your taxable income, and your tax band. The current income tax rates for 2023-24 are:
- 0% on the first £12,570 of taxable income (personal allowance)
- 20% on the next £37,700 of taxable income (basic rate)
- 40% on the next £112,630 of taxable income (higher rate)
- 45% on any taxable income above £162,900 (additional rate)
You may be able to reduce your income tax bill by claiming various reliefs and allowances, such as:
- Trading allowance: You can earn up to £1,000 from self-employment without paying any tax
- Personal savings allowance: You can earn up to £1,000 in interest from savings without paying any tax
- Dividend allowance: You can earn up to £2,000 in dividends from shares without paying any tax
- Pension contributions: You can deduct up to 100% of your earnings or £40,000 (whichever is lower) from your taxable income by making pension contributions
If you sell out your business as a limited company, you may have to pay corporation tax on any profits that you make from the sale. Corporation tax is payable by the company, not by you as an individual. The current corporation tax rate for 2023-24 is 19%.
The profits that are subject to corporation tax include:
- The gain from selling the company’s assets or shares
- The final trading profits of the company
- Any interest that the company receives from lending money
- Any dividends that the company receives from other companies
The company may be able to reduce its corporation tax bill by claiming various reliefs and allowances, such as:
- Annual investment allowance: The company can deduct up to £1 million from its taxable profits by investing in plant and machinery
- Research and development relief: The company can deduct up to 230% of its research and development costs from its taxable profits
- Patent box: The company can apply a lower rate of 10% on its profits from patented inventions
Selling out a business in the UK can involve various taxes, depending on the type and size of your business. Before selling your business, consult an accountant or tax adviser for expert guidance on reducing tax liability and maximizing profit. They can help you plan, calculate your taxes and claim any reliefs and allowances that you are entitled to.
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