If you get to a point where you are thinking about selling a business, there is a lot of different elements you need to take into account. This includes things like, what documents do you need to complete this process, who do you need to talk to and how do you know if you are valuing your business at the correct rate? Although this can all come over mind boggling, it can be a pretty simple and easy process if you take care and think it through properly. Below are 5 steps to help you:
Value your Business as accurate as you can
If you are at the point you want to sell a business then putting a valuation on what it is worth is one of the most important factors you require to get right. If you value your business too high, you will clearly struggle to get it sold however if you go the other way and value too low, there will be a keen buyer who will snap it up and benefit from your miscalculations. People use several different ways to value your business however the most common method is the multiples of earnings calculation. In order to use this method, your company needs to have some financial history behind it. The P/E ratio (Price / Earnings) represents what your valuation of your company is divided by its tax profits. An example of this would be, if you were offered £500,000 for your small business and it was making post-tax profits of £100,000 your P/E ratio would be 5 (completing the formula would be £500,000 / 5).
Get your financial documents in order
This sounds simple enough however if you don’t have these in order then it can cause you major problems when trying to make a transfer. Make sure all annual returns are submitted, completed and accurate. This also includes things like VAT returns, inventory lists etc. In addition to this, it’s also worth while you checking out that the latest documents in Company House are accurate (address of business, shareholder holdings etc).
Keep Staff Motivated
When your staff hear that you will sell the business this could have some immediate affects that would directly affect the performance of the company. Depending on the circumstances around this, it could directly affect staff morale, motivation and drive. Their position in the company and sustainability of their position needs to be made clear. Transparency is key here so that your staff trust you and can weigh up their options (good or bad).
Clear any Outstanding Debt
If you have any debt outstanding in your business, when you go to sell it this could cause a lot of difficulty. Ideally you want to have all debt cleared in totality and clean books. If this is not possible then you must be open and honest with any potential buyers and ensure you have given them all the documents and terms connected to the debt.