Selling a business FAQ
Questions frequently asked by business owners considering the sale of their business.
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1. What preparation can an owner or board of directors undertake before selling the business?
What is important is that the business is presented both historically and looking forwards in a way that substantiates the improving trends of the business. This will include e.g. the repeatability of revenue streams and the certainty of any contracted income.
Sensible housekeeping such as ensuring that all supplier relationships are robust and any critical client contracts are signed and up to date. It is also very important to keep debtors under proper control. A lot of firms dealing in business disposals often talk about ‘grooming’ the business in readiness for its sale. In reality any such ‘grooming’ will become visible to a purchaser who may find it necessary to readjust e.g. for any over zealous headcount reductions which are designed to inflate profits.
As part of our free consultation we undertake a full fact find which will identify any areas of the business that need to be improved in order to attract potential purchasers.
2. Why do some business broking firms ask for over £40,000 in initial fees and also a further success fee on selling the business?
There is absolutely no reason for any business to pay fees at this inflated level. Effectively the broker is removing any risk they have in failing to sell your business.
All competent advisers and brokers will undertake to value, assess sellability and market the business for a much lower fee if they are confident of completing a transaction.
It is not uncommon for firms asking for this exorbitant fee to also place your business on advertising sites open to the general public.
3. What underlying tax rate should I expect?
Subject to qualifying rules and regulations entrepreneurs may qualify for the highly attractive tax rate of 10% for the first £1m of sale value under the Capital Gains Tax allowance. This relief was called ‘Entrepreneurs Relief’ but is now called Business Asset Disposal Relief.
Please note - This may be changing soon and could be abolished completely.
4. What happens to the cash in my business?
Most transactions are carried out on a Debt Free and Cash Free basis. This effectively means that the vendor has to cover his creditors (tax, suppliers, bonus’s etc) up to the date of the sale from the consideration monies. If there is a cash balance in the business by virtue of debtors and the cash in the bank exceeding creditors then this balance is paid to the vendor. Please note however this balance will be subject to a working capital calculation. We can help assist in ensuring the most tax effective treatment of such cash.
5. What are the key factors that influence the valuation of my business?
There are a number of key points outside of general factors that can effect valuation. For example the economy (recession) or even the political environment can have an impact generally on valuations.
Specific value drivers include but are not limited to:
Intellectual Property within the business
Specialism of process or processes – (can any firm do it? Or do you need specific skills and licences?)
Contracted client base
Repeatable contracted revenues
6. Who handles the negotiations and ensuring the right deal for the business?
We handle all of the negotiations from initial meetings to the signing of completed contracts. Its our job as the professional advisor to take you through the process stage by stage while ensuring that you are still focusing on running your business as normal up until final completion.
You will be chaperoned through the entire process by a senior partner.
7. Are Opus Hyde House Business Brokers the right advisors for you?
Hyde House successfully completes transactions for its clients at maximum value.
Follow this link to read a range of testimonials.
We specialise in selling medium sized businesses across almost all sectors and business activities.
To help you decide if we are the right broker for you and your business we offer a free consultation and valuation.