Deciding to sell your business can be an incredibly fraught and emotionally taxing choice to make – but if yours is a family business, then the decision can be even harder, and significantly more complex.
After all, it’s not solely your choice to make; depending on the number of family members involved, the decision to sell could affect several of your close relatives. As a result, it’s an undertaking that must be handled with particular care and sensitivity, not to mention a healthy amount of research and negotiation beforehand.
The reasons for selling a family business can be numerous, but whatever your unique circumstances are, we’ve compiled this essential guide to help make the process more straightforward.
Our guide will cover:
- Common reasons for selling a family business
- How to prepare your family business for sale
- Notes on tax and business valuations
- How a business broker can help
- Preparing for negotiations and due diligence
- Moving forward once the deal has been finalised
While selling your family business will never be an easy decision, ensuring you are well-prepared will help you to make the life-changing transition to the next chapter of your life.
Common reasons for selling your family company
There are well over 4 million family businesses in the UK, each one with its own unique strengths and weaknesses. However, when it comes to the matter of selling up, there are several common motivations for making this weighty decision.
These include:
- Stagnation in terms of growth / general downturn in profitability
- Retirement / desire for a lifestyle change
- No family members keen to take over
- Friction within the family that is causing problems for the business
Of course, whatever the reason for your sale, it’s important to involve the entire family in the decision-making process and dedicate plenty of time and effort to laying the groundwork for exiting the business. You also need to ask yourself, repeatedly, ‘Am I ready to sell my business, or is now not the best time?’
If you’re struggling with the notion of moving on, even though you think it’s the right thing to do, you may want to start off gradually – perhaps by selling off some shares to begin with or putting one part of the business up for sale initially.
It’s also a good idea to seek professional advice from your business’s legal and financial team, so you have all the knowledge you need to progress with an acquisition.
Mastering the M&A process
If you’re not sure how to sell a business, it’s important to do your research and make plenty of preparations in the run-up to the sale.
Here are some important things to consider when selling a business:
- Every family member involved in the running of the business needs to be on board. This could potentially involve a fair amount of diplomatic to-ing and fro-ing between you and your relations, especially if some of them aren’t so keen to sell up.
- All your paperwork needs to be in order. This ranges from your tax filings to your balance sheets and your profit and loss statements. You also need to make sure that all your supplier and client contracts are up to date, not to mention your business license.
- If your business premises is leased, then you should think about arranging a long-term agreement to make the company more attractive to would-be acquirers.
- Strengthen your company’s management team and make sure you sort out contracts for those employees who wish to remain after you have left the business.
Of course, while you’re making these preparations, you also need to focus on the day-to-day running of the company to ensure it remains efficient and profitable during the M&A process.
How much is my business worth?
As part of the acquisition process, it’s important to find out how much your business is worth.
Having a valuation conducted will give you an accurate idea of your company’s true market value. This, in turn, will help you a price that will give you a good ROI while simultaneously appealing to buyers.
If you are not sure how to value a business, there are several methods for you to consider. Alternatively, Harris Acquire offers a free valuation service, carried out by our expert business advisors.
Once you have a good idea of the kind of price you’d like to aim for, it’s time to think about the tax you may have to pay once the sale goes through.
Capital Gains Tax – what you need to know
If you stand to make a profit from the sale of your business that exceeds your tax-free allowance, then you will have to pay capital gains tax.
Currently, capital gains tax is charged at 10% for anyone paying a basic income tax rate, and 20% for those who pay higher or additional tax rates. The personal tax-free allowance is £6000, but if there is joint ownership, this allowance is doubled.
To help you work out how much capital gains tax you could have to pay, you can use this calculator provided by Hargreaves Lansdown.
It’s important to speak to a tax advisor about the amount of tax you may owe; they could also offer invaluable advice on any reliefs you may be entitled to.
Why use a business broker to sell your family business?
Because selling a family business can be such an emotional and complex process, it’s a good idea to consider hiring a business broker to over-see the sale.
Business brokers are well-versed in the B2B buying process, with a nuanced understanding of business buying behaviour and what makes acquisition prospects more attractive to potential buyers.
Not only that, but they can assist you with all the stages of the business buying process, from helping you to communicate with interested parties, to assisting with negotiation and due diligence. Their expertise and professional guidance can make the M&A process much more straightforward for both you and your buyer.
Negotiations – a vital part of M&A strategy
Once you have found a potential buyer, with the aid of your business broker you can begin the negotiation phase, which should then progress to due diligence if all goes well.
When it comes to negotiations, it’s important to be flexible but you should also be clear on which areas of the sale you are prepared to compromise on, and which areas you won’t.
You also shouldn’t be afraid to question the buyer closely to find out whether they would really be the right fit for your business. While you may wish to sell your business quickly for personal reasons, that doesn’t mean that you should go with the first would-be acquirer who gets in touch. After all, you will want to be sure that they are the right fit for your business, not only in terms of having sufficient finances to take over, but also when it comes to their corporate culture.
By the time the negotiation process is completed, you and your prospective acquirer should have settled preliminary terms and conditions for the sale and created ‘heads of terms’. This agreement is not legally binding, but it helps to lay the groundwork for the deal to go ahead.
Due diligence – explained
Once you and your acquirer have reached a tentative agreement following your negotiations, it will be time to enter the due diligence stage. This is arguably the most stressful stage of the business buying process, as the information shared during this period can make or break a sale.
During their due diligence, the buyer will wish to scrutinise all the important documentation relevant to the running of your business. This is likely to include:
- Financial records
- Statutory registers
- Assets
- Intellectual property
- Contracts
- Shareholder information
- Insurance
If you have any remaining liabilities, it’s also vital that you disclose these during due diligence, to avoid any difficulties further down the line. However, it’s recommended that you address liabilities before placing your family business on the market.
Moving on post-sale
As well as finalising the vital elements of your business sale – which includes ensuring that your employees will be taken care of, both during and after the deal has been made – you will need to prepare for your next chapter.
This potentially includes establishing how long the transition period will be, if you decide to stay on for several months post-sale to help the new owner. You should also consider that some of your family members may choose to remain with the business under its new leadership, while others may follow you to new ventures or to retirement. It all depends on your individual circumstances and goals.
The important thing is to dedicate time and effort to preparing for your next stage of life, whether that is laying the financial and legal groundwork for a new enterprise – or preparing for retirement. It’s also vital to do everything you can to ensure the handover of your family business goes smoothly for all involved – employees, suppliers, clients, and the acquirers.
While there will undoubtedly be difficult moments, particularly from an emotional perspective, taking the time to make a seamless transition out of the company will benefit everyone, including yourself.
Harris Acquire is here to help
As you can see, there are so many things to consider when selling a business – especially when it’s a family affair!
To make the prospect less intimidating, why not get in touch with a member of our friendly, experienced team and find out how we can be of assistance. We have years of experience handling every aspect of a merger or acquisition, so we can answer all your queries and provide invaluable assistance during all the stages of selling a business.
Give us a call on 01926 757100 or send an email to Hello@harrisacquire.com and let’s get the ball rolling on the next chapter of your life!