The Art Of Selling Your Company

Selling a business is hugely exciting, but there are some fundamentals to consider. The earlier you start planning, the better.

You can download our brand new complete guide to selling your business, or read on for a brief overview.

The ten types of exit

There are several good reasons to move on from a company (£11.8bn’s worth of reasons according to this article). You might want the business to evolve in a different direction, you might want to retire, or perhaps exiting was the plan all along.

Whatever the case, here are ten ways to head towards that door.

1. Trade Sale (Acquisition)

A trade sale is perhaps the most common form of exit. It’s a straightforward case of another business buying yours.

Trade sales can offer the chance for a clean and quick exit.

Key success factors

Due diligence: Having all financials, contracts, and intellectual property in order will speed things up and remove roadblocks.

Valuation: A realistic, data-backed valuation will be attractive to potential buyers.

Strategic fit: Buyers with business models or product lines that align with your own will often be willing to pay more.

Legal compliance: Make sure all regulatory requirements are met to prevent snags.

2. Initial Public Offering (IPO)

Going public is another option, although it’s often reserved for companies with significant revenue and strong growth prospects

Key success factors

Financial health: Strong balance sheets and cash flows make the business attractive for buyers.

Market timing: Going public during favourable market conditions maximises your return.

Strong management: Investors look for competent leadership as a sign of stability.

Regulatory compliance: Meeting all stock exchange and securities commission requirements is crucial.

3. Management Buy-Out (MBO)

In an MBO, the existing management team buys the business. If the management team is strong, this can be an excellent option.

Key success factors

Skilled management team: The team taking over must be capable of running the business effectively.

Financial planning: To secure financing, detailed financial future planning will be necessary.

Seller financing: Often, the current owner may need to provide some form of financing.

Transparency: Open communication between sellers and the management team can facilitate a smooth transition.

4. Management Buy-In (MBI)

This is similar to an MBO, but in this case, an external management team buys into the company and takes over its operation.

Key success factors

Due diligence: The incoming team must fully understand all aspects of the business.

Cultural fit: There should be alignment in vision and culture between the new management and existing team.

Financing: MBIs often require a combination of private and seller financing.

Transition management: A well-planned handover period will help maintain business continuity.

5. Employee Ownership (normally via an ‘EOT’)

Some businesses transition ownership to the employees. This is generally via an Employee Ownership Trust. There are generous tax reliefs for the founders who sell their shares into an EOT.

So long as the EOT holds more than 50% of the company’s share capital for example, you won’t pay any Capital Gains Tax. It’s a total win-win!

Key success factors

Legal structuring: The ownership model must be clearly structured and legally compliant.

Funding mechanism: A plan for funding the share transfer will be necessary, usually out of future earnings.

Management transition: Clear succession and governance plans are crucial for stability. The future leaders will need to be clearly identified and incentivised.

6. Merger

Less commonly, some companies opt for a merger with another company as an exit strategy.

Key success factors

Synergy: The merged companies should have complementary assets, skills, or market access.

Due diligence: Both companies must understand each other's finances and operations.

Integration planning: A detailed plan can prevent post-merger issues.

Regulatory approval: Compliance with competition law and other regulations is essential.

7. Asset Sale

This is not a sale of the business per se but a sale of its individual assets, such as intellectual property, real estate, and equipment.

Key success factors

Asset valuation: Each asset must be accurately valued for a fair transaction.

Clean contracts: Assets should be free of legal entanglements. Make things simple for buyers.

Buyer identification: Finding a buyer who specifically needs the assets can maximise value.

Regulatory compliance: The sale of certain assets may require regulatory approvals.

8. Franchising

Although not an exit in the traditional sense, franchising allows you to scale back your involvement in the day-to-day operations of the business while still maintaining an income stream.

Key success factors

Standardisation: Business operations must be standardised for franchisees.

Strong brand: recognisable brands work best in the franchise space.

Training programs: Effective training is crucial for maintaining quality across franchises.

Legal framework: Comprehensive franchise agreements protect both parties and ensure consistency.

9. Family Succession

For some family-run businesses, the exit strategy might involve handing the business down to the next generation.

Key success factors

Succession planning: A well-documented plan clarifies roles and expectations.

Training: The next generation should be prepared through experience and education.

Financial structuring: The financial aspects of the transition need to be carefully planned.

Legal formalities: Inheritance and tax laws must be considered in the handover.

10. Liquidation

If you need to sort things out quickly, winding up the business and selling off its assets can make sense.

However, this is the least favourable option in terms of financial return and legacy so it’s generally regarded as a last resort.

Key success factors

Asset valuation: Fair and accurate valuation of assets = maximum returns.

Legal compliance: Liquidation must meet all legal requirements, including payments to creditors.

Efficient execution: Quick and efficient sale of assets prevents depreciation in value.

Creditor communication: Open and transparent communication with creditors can make the process smoother.

Maximising your valuation

Not everything is within your control but if you understand the factors that can lift or lower a valuation, you can put your best foot forward when it comes to selling.

Things that (generally) maximise valuations:

• Robust/proven management. Get your house in order!
• Consistent earnings. Can you show a steady stream?
• Intellectual property. What can you copyright or ringfence?
• An engaged workforce. If there’s time, a share scheme works wonders.

Things that (generally) lower valuations:

• Stagnant sector. Can you diversify?
• Over-reliance on founders. With you gone, will the business evolve?
• Reliance on one or two contracts. Spread the risk.
• Business easily replicated. How can you secure your company against imitation?

If selling is a few years off…

…you might want to consider getting a share scheme.

Companies that share ownership report growth of 10.2%, vs the UK average of 7.7%.

Additionally, 93% of founders said their share scheme helped their company grow and 95% said shares improve employee loyalty.

Plus, there are big tax efficiencies to be had.

Getting a share scheme can get your company in the shape of its life, ready to realise its full potential.

Keeping a clean cap table

When kept clean and tidy, a cap table provides a clear view of company ownership.

This clarity is essential ahead of an exit.

If you have any outstanding equity liabilities or promises (like issuing options or shares), make sure that they have been done well ahead of time.

And keep all related documentation and final form agreements in one place to maximise ease of due diligence for anyone.

Getting all of the above right really matters to buyers

Preparing employees

Preparing your employees for a company exit is a delicate process that demands transparency, clear communication, and thoughtful planning.

You can help to make the process as painless as possible by considering the following…

Open Communication

As soon as it's appropriate, openly communicate the likelihood and potential timeline of an exit. A comms vacuum will often open the door to rumour and panic, so keep people informed.

Training and Skill Development

Develop a program that allows employees to acquire new skills that will either be crucial after the exit or enhance their marketability.

Financial Transparency

Consider implementing a retention bonus to incentivise key employees to stay through the exit process. Make sure your team members understand what will happen to their stocks and shares during the exit process.

Emotional and Psychological Support

You might consider making professional counselling services available to employees to help them to manage their concerns related to the exit.

Legal and Contractual Clarity

Make sure employees understand any NDAs or non-compete agreements that are in place, especially in relation to how they might be impacted by the exit.

This is also a good time to update the employee handbook to include protocols and procedures specifically related to the exit.

Future Opportunities and Career Support

If layoffs are expected, offering outplacement services can help departing employees find new opportunities.

Download the complete guide!

We’ve covered off the most common ways to sell your company, the key things that you need to think about, and we’ve even included some handy checklists to help you get things sorted.

Download the guide

Good luck with your plans, and don’t forget, if you need any support with cleaning up your cap table or share scheme ahead of your exit, we’d be happy to help. Get in touch!