Tax Advice

How to sell a business

16 Feb 2020

When a limited company is incorporated at Companies House, the business becomes a distinct legal entity, meaning it can be sold just like any other form of property. Unless the business is legally dissolved, it exists beyond the life or ownership of the original owners.


If you are the sole director and shareholder of a private limited company, you can sell your business and any of its assets if you don’t want to own or manage it any longer. If your business has other shareholders, you can’t sell the business without their approval. However, you can sell the shares you own in the business and resign as director.


Shockingly, approximately half of start-ups fail within five years. There are a range of reasons for why a small business owner would sell their company, but it’s important to not wait until you’re ready to sell the business to prepare an exit strategy. Exit planning ahead of time is vital to effectively sell your business. Here are our other tips on how to sell a business.

how to sell a business

The importance of getting a business valuation

Putting a number to what your business is worth can be challenging. There’s more to factor in than just crunching numbers on your balance sheet, and there isn’t only one single formula accepted and used to value businesses. A business valuation takes into account many elements, including:


  • Value and current profitability of your business and its assets

  • Brand and reputation of your company

  • Client and employee relationships and retention rates

  • Sales history

  • Forecast of future earnings

  • Potential risks for the buyer


Business valuations from an expert can provide you with a reliable assessment of your company’s value, so you don’t let your business go for less than it’s worth. Shockingly, 58% of UK SMEs are not realising their true value and do not have any form of succession plans in place.


To find out how we can help you sell your small business for the maximum amount, get in touch with our experienced team on 0207 043 4000 or info@accountsandlegal.co.uk.


Tips to help you sell your small business


  1. Timing is everything


There are many things to consider when selling a business, including if it’s the right time to sell. Deciding if it’s the right time depends on the current economic conditions and the market. Take into consideration the long-term investments you made through the business and if you will see any of the payout from them. 


Additionally, think about your businesses’ natural cycle, such as quiet and busy times throughout the year, as this will impact the profits of the company and could put off potential buyers.


  1. Be prepared


You also need to make sure your business is in shape before you start trying to sell your business. Make sure you have contracts with your employees and any other staff members and a basic employee handbook with key business procedures and policies. Having strong cash flow can be especially beneficial.


If a business valuation comes back lower than you’d like, you might want to spend time improving your businesses’ value. Think about what would attract potential buyers. Additionally, when selling your business, make sure all of your records are up-to-date, be as transparent as possible, and prepare yourself for the potential questions interested buyers will ask.


Read more: How your accountant can cure your cash flow problems


  1. Get the professional help you need


An accountant can provide a business valuation, talk you through different business and industry valuation factors, and help you with your business exit strategy. For specific advice or services on valuing and negotiating the sale of your business in your industry, please get in touch


London accountant

Your responsibilities when selling your small business


Selling your business can be an emotional time, so it’s important you’re ready to deal with your legal requirements and tax obligations. There is also necessary paperwork that needs to be filled out, and these vary depending on what type of business you have.


When you sell your business, you will need to notify Companies House. Update the registered details of current directors, shareholders and secretaries and put the date you will no longer be appointed as director. You may also need to inform HMRC that you’ve sold your business for Self Assessment and National Insurance purposes. You can do this by filling out an online form. If your business is VAT registered, you will need to transfer the VAT registration number to the new owner.


There is much necessary paperwork you need to fill out when selling your business. You will need to put together a statement of capital as part of an annual confirmation statement. This will include details involving the sale of your business shares and the removal of yourself as a shareholder of the business from the public record.


Tip: Check out the government’s website for a complete list of responsibilities when selling your business.


How to avoid capital gains tax on business sale


Wondering how to avoid capital gains tax on a business sale? You could get hit with a hefty tax bill when selling your business, and tax planning can help you find ways to offset Capital Gains Tax from the sale of a business. 


Capital Gains Tax is chargeable when a gains been made from selling or transferring assets in the form of the share capital of a business. Estimate the amount you will likely owe for Capital Gains Tax from the sale of your business, and see if you can offset or avoid Capital Gains Tax.


You may be able to reduce the amount of Capital Gains Tax you owe by claiming Entrepreneurs' Relief. If you’re selling all or part of your business, you can claim this relief if you are a sole trader or business partner and have owned the business for at least two years up to the date you sell it. If Entrepreneurs’ Relief applies, your rate for Capital Gains Tax will be reduced to 10%. As that’s a substantial tax saving, it’s recommended to organise your business and the sale so that you qualify for this relief. 


You might also be eligible to claim other tax reliefs in order to offset or avoid Capital Gains Tax from the business sale. Business Asset Rollover Relief and Incorporation Relief delay when you pay Capital Gains Tax. Gift Hold-Over Relief allows you to avoid Capital Gains Tax if you give away a business asset. The person you give the asset to pays the tax when they sell it. 


Check out this page to see if you’re eligible for any of these reliefs.


Read more: Making the most of small business tax relief


Accounts & Legal provide business valuations and exit strategy when selling a small business


Our top London accountants at Accounts & Legal help small business owners put together exit strategies. We can also advise and assist in business valuations for the sale of small businesses. We also have negotiators and strategists to further help with valuing and offering advice to small business owners interested in selling their business.


Give us a call on 0207 043 4000 for more information on our services involving valuing and selling small businesses, or try our instant accounting quote tool.


Sylwia Kotarba-Harris

photo

Associate Director

0207 043 4000

About the author

In addition to a BA (Honours) in Accounting, Sylwia also has a law degree, becoming legally qualified, deciding not to pursue career as a solicitor and instead reverted back to accounting.

Before opting for accountancy, Sylwia worked in various commercial roles, including sales for a prestigious business organisation, business development and high level client care/management skills at Gordon Ramsay’s head office, working as a VIP liaison.

Sylwia is a member of ACCA and joined Accounts and Legal in 2015. Her clients range from software development consultants to multinational wholesalers. Notably, Sylwia recently worked with a London gym and a new chain of supermarkets.

Outside of work she enjoys travelling more than anything else, having visited 5 continents in the last 2 years.

  

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