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What is the Process for Buying and Selling a Business?

The prospect of buying or selling a business can be a daunting one, particularly if you have very little previous experience with commercial transactions. No two business sales are ever likely to be identical, but there are several standard processes and similar characteristics which ensure a transaction is successful for all parties.

Here, we discuss what the process of buying and selling a business in the UK looks like, as well as discussing some of the other important questions that often arise when completing such a transaction.

How do I go about selling my business?

The process for selling a business is fairly straightforward, although there are a number of steps which need to be addressed for a transaction to go ahead as smoothly as possible.

Preparing the business for sale

Typically, the first step involved in the process of selling a business is to start assessing how the business can be made as appealing as possible to any prospective buyers. This will involve organising any business records and paperwork, updating all of the business accounts and resolving any ongoing disputes.

A business sale can be structured in many ways. It is important to choose the correct sale structure that fits best with your reasons for selling the business and potential plans after the sale.

Valuing the business

Following this, you will need to obtain an accurate valuation of the business, which will dictate the estimated market price. There are various methods for business valuation, but it will typically include taking stock of a business’s capital structure, the market value of its assets and the future earnings prospects.

Finding a buyer

Of course, it is not possible to sell a business without identifying a buyer. Identifying a buyer will often involve advertising the business through suitable channels and carrying out extensive due diligence on any interested parties before any sort of commitments are made.

Agreeing terms

When both parties are ready, the terms of the sale will be agreed on, which specify the price, assets and when ownership will be transferred. A business purchase agreement is completed, which transfers ownership to the buyer.

Post-sale processes

After a business is sold, there are additional steps which need to be handled, such as informing existing employees, contacting HMRC and paying any relevant taxes, such as Capital Gains Tax (CGT).

What should you consider when selling a business?

As we have mentioned, no two business transactions are the same. But there are several factors you will always need to consider, no matter what the specifics of the deal relate to.

Factors you may need to consider include:

  • Your existing business structure and ownership
  • The tax consequences of a sale
  • Due diligence (including confidentiality agreements)
  • Employees (TUPE)
  • The timing of the sale
  • The sale structure

How much does a business usually sell for?

Estimating how much a business usually sells for is not entirely dependent on its relative size and profits. It also has much to do with the method of valuation, as well as other external factors such as the general economic climate and the presence of intangible assets (such as trademarks and branding).

Some valuations are very straightforward and provide a clear indication of how much the business could sell for. Entry cost valuations show the predicted cost to set up a similar business from scratch, and asset valuation calculates the net realisable value of all the tangible assets associated with the business.

In certain scenarios, it may be more beneficial to use earnings multiples to obtain a valuation of what the business should sell for. For example, the Price/Earnings Ratio (P/E) will represent the value of the business divided by its post-tax credits. 

How do I buy a business?

Buying a business includes multiple steps and checks, similar to selling a business, and it is important that you are aware of what you should be looking for and what measures you should follow to ensure you are able to finalise a secure and, ultimately, profitable transaction.

As a buyer, if you do not already have any contacts or an indication of the exact business you would like to buy, you can identify suitable businesses via online listings, through traditional advertisements in local media or online publications, or through word of mouth via your wider business network.

Once you have identified a business that you are interested in buying, you can submit initial enquiries to register your interest and, when you’re ready, raise finance to facilitate a deal. This could be through anything from a bank loan to equity financing.

When you’re ready, you can then engage in negotiations with the seller to determine the terms of the business sale, and, when provisional terms are agreed upon, you can carry out due diligence to make sure you know exactly what you are getting into.

What should you look for when buying a business?

Exactly what you are looking for when buying a business will vary depending on your general commercial goals, the industry you want to operate in and your wider plans for expansion.

When identifying a suitable business, you will want to make sure that you consider various points that should help to clarify what it is you are looking for, including:

  • The business’s entity status
  • What your legal liabilities will be
  • What the outlook of the industry is
  • The presence of both tangible and intangible assets
  • The business’s existing reputation
  • The structure of existing employees and personnel
  • Recent financial history

Get in touch with our commercial solicitors in Bournemouth

Our company and commercial solicitors are available to lend expert support and guidance to anyone looking to buy or sell a business. To get in touch, give us a call at our office in Bournemouth, or fill in our online enquiry form for a quick response.