What you need to know when considering selling your company
5 costs it is best to consider before selling your company
Everyone will want a slice of the action
Nothing is less sentimental than business and so when considering the sale of your company you need to be prepared for the costs and demands that it will place on you by those around you. Everyone will want a piece of the action, but you will need support from others to carry through the sale of your company successfully.
5 top tips to remember when selling your company:
1. Legal and financial advice.
When selling a company, you will need to ensure that your accounts are in perfect order and your will need to draw up a legal contract with the buyer that meets both parties demands. Both accountant and solicitors will need to charge you for this. The amount will depend on the work required. However, make sure that you get value for money. They are working on your behalf and, unlike you, they will have den this before and so can be a very valuable source of specific advice. Have a budget in mind and keep those costs under control. Remember that these fees will be your personal responsibility to pay from the proceeds of the sale.
2. Earn out clauses.
Everything is negotiable and your buyer may want you to leave as soon as the sale is completed, or they may want to retain you. They may ask for a Earn Out meaning your will paid more based on future results. Be very careful. Once you are no longer in control you will not be able to influence many or any of the costs and so any earn out clauses based on net margins are very risky. The term “burn-out” did not come about without reason.
3. Handing over the keys.
Be cautious about allowing access to bank accounts and cash deposits until you are certain that all legal matters have been completed. Be careful regarding deferred payments. You need to be certain that you will receive payment. It is preferable to get fully paid and only hand over the bank account access when everything is complete. This may be some days or even weeks after the sale. If the agreement includes the repayment of any outstanding loans that may be associated with your property or you have given personal guarantees you need to ensure that these are all paid and transferred to the new owners. Some buyers insist on only buying companies once “debt free” but this will simply be reflected in the sale price. Everything is negotiable but make sure you understand the exact outcome of that negotiation and it is agreed in the Share Sale Agreement or the Asset Sale Agreement.
4. Using a broker
In general, a broker will want a fee upfront and a percentage of the sale. For which they will do very little. Be very careful appointing a broker because their business is a numbers game, aiming to have as many clients as possible, taking upfront fees and then selling a small percentage. As I have said elsewhere the best person to sell your business is you.
5. The tax man cometh.
On the sale of the company’s shares you will pay capital gains tax but at a lower rate. This used to be called entrepreneurs’ tax relief but is now called business asset disposal tax relief. This amount can vary but usually it is 10% tax on up to £1 million in profit gained from the sale of the company.
If you are considering selling your company or want to discuss your situation in more detail please do not hesitate to speak to our expert on 07860 607815 or email firstname.lastname@example.org.