How to sell a business when you’re self-employed

Whether you’re considering it by choice or necessity, it’s important to understand how to sell a business when you’re self-employed. Getting the best financial return from a sale can make a huge difference to your life, as can failing to meet your legal, contractual and tax responsibilities.

You may decide to sell up for a number of reasons, including investing your time and money into a different venture, retirement, or current interest from buyers. The decision can also be prompted by ill health, debts, or a fall in demand. In all cases, investing time and preparation will typically help you find the best deal, and avoid it falling apart due to unexpected problems. 

If you’re looking to release some of your money tied up in the business, you may want to look at selling assets instead of the whole company. This can include equipment no longer needed, or intangibles such as intellectual property. Or you may decide to close your limited company rather than waiting for a buyer.

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Preparing your business for sale

The sales process can take some time, especially if you’re running a larger company with staff and a mix of tangible and intangible assets. Deals often take between six and nine months, and including the preparations, you may need to invest time over one or two years to have your business in the best situation for a sale.

If you’re looking to pass over your business to family or friends, it’s worth creating a succession plan to guide future decisions and protect your legacy.

You’ll also need to bring your accounts, paperwork, and records up-to-date, renew or resolve outstanding contracts or leases, and settle any existing disputes with employees, clients, or customers.

With time to prepare, you can look at improving the prospects of selling your business by increasing the profits (for example, taking smaller dividends from a limited company), growing client and customer numbers, or working to secure higher value and longer-term projects.

Try to identify the most attractive aspects of your business to potential buyers, as this will help you focus on those areas in the time before a sale is secured.

You should also be clear on the reasons for selling up. Potential buyers will want to know why you’re exiting your business, especially if it’s successful and profitable.

You may need specialist advice and support to help you achieve a good deal. With smaller self-employed businesses, that may mean an accountant or financial advisor. But you may prefer to use a business broker to take on some of the responsibilities, including negotiations.

IPSE members have access to tax and legal helplines, along with templates and tools in our Business Hub. But you may also get some useful insights from talking with other self-employed professionals who have gone through a sales process, including on the IPSE Community Forum, or via our Facebook and LinkedIn groups. 


How to value and advertise your business

A realistic business valuation is important for your expectations and planning, as well as setting a viable price likely to attract potential buyers. There are different ways to estimate the market value of your company, depending on your size, industry, and other factors.

Any business will only be worth what someone is willing to pay for it. But you can get a valuation or calculate one yourself based on annual turnover, adding up the value of existing assets, or working out the cost for someone to set up a similar venture from scratch.

Another option is to work out the value of company shares compared to earnings for a limited company (your price to earnings or P/E ratio), or to calculate your discounted cash flow, by estimating what future earnings and dividends will be worth, which works for more stable and predictable industries.

Enterprise value (EV) includes business equity and debt alongside a market valuation, and is often quoted for hot start-ups and big mergers or acquisitions, along with Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA).

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You’ll also need to account for intangible assets, including the reputation and goodwill built up over time, trademarks, existing staff, business relationships, etc.

When you’ve established valuations based on one or more methods, you may need to attract potential buyers by marketing and advertising your business for sale.

You may want to create a sales brochure, which can be a one-page document or PDF listing what you do and the unique selling points (USPs) of your business, turnover, future potential and more detailed information on operations and assets. This is also a good time to consider any information you may wish to remain confidential from competitors and staff. 

There may be potential buyers in your existing network and communities. You can also list your business for sale via dedicated websites and forums, or announce it’s available publicly on your website and social media. Depending on the industry sector and type of business you’re selling, it’s likely there may be specialist sales sites and forums which can help you find the right audience, whether it’s for startups, software as a service (SaaS), graphic design, bookkeeping or anything else you can think of.

Business brokers should have a contact list of potential buyers, but it’s important to research any independent professionals you consider for a sales process. And to carefully check any agreement in detail before letting them sell your business on your behalf.


Finding the right buyers and negotiating a sale

It’s a good idea to find a few prospective buyers for your business, as your initial deal may fall through for various reasons. Due diligence on each of them could include references and credit checks to ensure they’re viable new owners with the funds available to complete the acquisition.

Be prepared for negotiations to take time and potentially some amount of compromise on behalf of both parties involved. If you’ve started and built up your own business, it can be difficult to let go emotionally, as well as from a practical standpoint.

Buyers will often want to negotiate your initial sales price, so it’s important to know the minimum amount you’ll accept before starting discussions. Ensure everything is recorded in writing, along with providing confidentiality or nondisclosure agreements to protect your business.

Try to focus on the priorities of your buyer, and what will be most valuable to them. If they already own a business, there may be advantages or synergies that will come from the acquisition.

There’s no binding commitment until the sale is completed, so don’t feel pressured by buyers or brokers into accepting a sale which you’re not happy with. Unless there’s an external reason to sell as quickly as possible, you can take the time to achieve a deal which is satisfactory for everyone involved.

The negotiations and documentation should also cover deadlines, and contingency plans if the sale isn’t completed for some reason, along with relocation or redundancy terms for any employees.



Documents required to complete a business sale

Once the sale has been agreed in principle, you’ll need to go through the required documentation to complete the transaction. Even if you’re selling to family or close friends, it’s important to check contracts to ensure everything is in place as expected, and there are no surprises or errors.

A solicitor will help you to review all of the agreements, which include:

  • Purchase and sale agreements: Covering the terms of the sale
  • Lender documents: Required to be included and reviews if the buyer is borrowing to fund the purchase
  • Lease agreements: Covering any existing premises or equipment
  • Bill of sale: Transferring the business assets to the buyer
  • Non-compete agreements: As part of the sale, you may need to agree not to start any new business or venture in competition.
  • Payment plan: You may have agreed to receive payment in instalments.
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Your legal and tax obligations

After a deal has been completed, your legal and tax obligations will be different depending on the structure of your company, and whether you aim to continue in self-employment for a different venture. 

Both sole traders and limited companies may be able to transfer an existing VAT registration to the new owner. And if you’re leaving self-employment, you can cancel your Class 2 National Insurance contributions via HMRC.

You’ll also need to tell any staff when the business is being sold, and the reasons for the sale. Details on redundancy terms and relocation packages is also required under The Transfer of Undertakings (Protection of Employment) regulations.

As a sole trader you’ll need to use an online form to tell HMRC that the business has been sold. If you’re no longer self-employed, you’ll need to send a final tax return by the 31st January Self Assessment deadline before your obligations end.

If you’re selling your shares in a business partnership, then the same rules apply. If the whole partnership is sold, then the nominated partner also needs to send a partnership tax return in addition to the personal submissions.

Selling shares in a limited company requires you to appoint new directors before either staying on to help the transition, or resigning yourself. You’ll need to notify Companies House of all changes. You’ll also need to let finance providers know within 21 days of a sale if you’re secured any lending against personal property.

It’s important to remember that while resigning as a director means you will not be liable or responsible for any business actions following that date, you may still be accountable for prior decisions. 

In all cases, you’ll need to pay Capital Gains Tax (CGT) on any profits made from the sale of part of a company or the whole business.

You can potentially reduce the amount of tax owed when selling a business with various measures, most commonly Business Asset Disposable Relief (formerly known as Entrepreneurs’ Relief). This allows for a CGT rate of 10% on qualifying assets up to a lifetime limit of £1 million.


Other considerations when selling a business

If you’re selling your sole source of income and self-employment, it’s important to plan what you want to do in the future




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