How to Sell a Small Business in the UK: A Step-by-Step Guide for Owners

There are many reasons business owners may want to sell their company, from reaching retirement age or losing motivation to economic or industry changes, or simply to make a substantial profit.

In this article, we outline where and how to sell a small business and ways to reduce your risk and boost your company’s value.

Understanding what makes your small business valuable

When selling a small business, you need to understand what buyers are looking for and what makes your business attractive. It’s not just about seeking a good price; there are numerous positive attributes buyers want to see in prospective businesses and red flags they’ll be looking out for to minimise their risk.

Here are some of the main things that make your business valuable and attractive to potential buyers:

• A stable income and solid foundations 
• Clear profitability and growth potential
• Good market positioning and an established reputation 
• A loyal and sizeable customer base
• A scalable business model
• Clean financials and a trusted track record
• A strong management team

Preparing your business for sale to attract better offers

While your business may have many of the attributes mentioned, there are steps you can take to prepare for a sale that can make it more attractive to potential buyers.

Consider the following ways to showcase your business benefits and maximise its sales value:

• Organise your finances and clean up your accounts – buyers want clarity, and well-prepared accounts instil confidence and ease due diligence.
• Settle outstanding debts – reducing liabilities makes your business more financially appealing.
• Fix operational issues – resolving problems can prevent queries during evaluations that may put buyers off.
• Streamline processes – this can demonstrate business efficiency and suggest that the transition will be smooth.
• Ensure you’re meeting compliance requirements – solid regulatory compliance will ease buyer fears, especially those new to your industry.
• Diversify your revenue streams – multiple revenue sources show your small business has the resilience to mitigate the impact of financial downturns.
• Document key processes – well-documented operations indicate good organisation and a lower chance of business disruption during the takeover.
• Boost your brand presence – investing time furthering your digital footprint and brand presence will breed confidence and increase growth potential.
• Improve your physical or digital assets – while you may not want to shell out a lot of money on new equipment for a business you want to sell, upgrading outdated tools and systems can ease buyer concerns.    
• Agree key contracts or renew supplier agreements – strong business relationships and supply chain promote stability and secure future revenue.
• Review pricing strategy and margins – see where you can responsibly improve margins and increase profitability.

How to value your small business fairly and accurately

Accurate valuation is crucial if you want to sell a small business. It sets realistic expectations for buyers and sellers, reducing the chances of lengthy negotiations.

According to 2024 research from Marktlink, 33% of UK entrepreneurs didn’t know how much their business was worth, while 32% felt their business was undervalued.

Numerous factors influence business value, including financial performance, business assets and liabilities, growth potential and market conditions. And there are several methods of valuation you can use.

Here are the common business valuation methods to consider:

• Earnings multiples: This method identifies similar companies and evaluates their market values, looking at price-to-earnings ratios for traded businesses and using relevant multiples to calculate comparable value.
• Asset valuation: Calculating the value of the business based on the net value of its assets minus liabilities. So, it’s a method well-suited to asset-rich companies in industries like manufacturing, construction and real estate. 
• Discounted cash flow: This requires solid forecasting and predictable cash flow, as it estimates company value based on projected future cash flow.
• Entry cost valuation: Determining value by calculating what it would cost to build a similar business from scratch, including time and cost of acquiring assets and clients and developing products, services, infrastructure and branding. The method is best for niche businesses with unique positioning.
• Times revenue: Commonly used when valuing new or early-stage companies with inconsistent profit or lacking sufficient earnings history, calculating turnover and multiplying it by an industry-specific multiplier.

We recommend using an independent financial adviser to determine the influencing factors for these methods or getting a professional valuation to ensure accuracy.

Consider your intellectual property (IP), brand reputation and customer loyalty when valuing your small business. Patents, trademarks and proprietary software can boost business value, offering a clear competitive advantage and potential for the IP’s value to grow. Meanwhile, being well-respected in your industry is important for certain buyers, such as those seeking strong localised roots. Having a loyal client base is also attractive, as it means greater customer lifetime value and recurring revenue. 

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Where to sell a small business in the UK and find serious buyers

There are various ways and places to find potential investors who are serious about buying a business like yours. 

Here are the main places where you can sell a small business and find buyers:

• Use business brokers or online marketplaces – brokers and platforms like Daltons, BusinessesForSale.com and RightBiz can give you a wide pool of qualified buyers and support your sale process.
• Industry contacts – suppliers, partners and other industry peers within may be interested in acquiring your company or recommending it to buyers due to their close understanding of your business and its potential.
• Competitors – your competition may be attracted by your resources, market share and customer base, and an acquisition could strengthen their position.
• Accountants, solicitors and financial advisers – these professionals often have investor networks and know people/organisations actively seeking businesses to buy in your sector.
• Private equity groups – attracting private equity groups or angel investors can be a good option if your business has clear and strong growth potential.
• Industry forums/social media – business groups in channels like LinkedIn, Facebook and Reddit, plus sector forums, can be great places to network with potential buyers and put feelers out about a potential business sale.
• Existing employees and management teams – there may be an internal opportunity where trusted staff members take over the business via a management buyout (MBO), which can often lead to a smooth transition.

When exploring how to sell your small business, why not look to your clients? One of them may want to bring services in-house or grow and diversify their offering. Another option is a succession, if family members or people in your personal network are a good fit, as this may reduce costs, risks and complexity. 

The importance of confidentiality agreements when looking for a buyer for your business

Confidentiality agreements, also known as non-disclosure agreements (NDAs), are critical for communicating with potential buyers and brokers. 

Benefits of NDAs for sellers include:

• Protecting sensitive business information
• Safeguarding your competitive advantage
• Preventing alarm or disruption, such as amongst staff and clients
• Building trust with advisors and intermediaries

Overall, these agreements formalise the process and support smoother negotiations. Typically, as a seller, you should use NDAs before releasing key information, financial statements and details of customers and suppliers.

How long does it take to sell a small business?

While acquisitions typically take between 3 and 9 months for small businesses, the length of the process can depend on various factors, such as deal structure, industry/business type, barriers to purchase and price negotiations. If you’re proactive about your obligations and forthcoming about your financials, and you get support from industry experts and advisers, you can shorten the likely timelines of the sale.

Can I sell a small business without a broker?

When learning how to sell a small business, using a broker can provide vital support. But yes, you can sell a small business in the UK without using a broker. However, the sales process requires significant time, legal and financial knowledge and good negotiating skills. Whether you want to use one depends on your particular circumstances and the route you’re taking, but brokers offer industry expertise, access to buyers and support with due diligence and valuation. 

Going it alone can delay the process and expose you to risks, such as legal and compliance missteps and overlooking potential issues during vetting and due diligence.

Legal, financial and tax considerations when you want to sell a small business in the UK

Below, we’ve outlined the main legal, financial and tax-related considerations for when you want to sell a small business and get your ducks in a row for a smooth process:

Legal considerations

• Heads of terms – an initial non-binding agreement that precedes formal contracts and outlines commercial terms.
• Deal structure and whether it’s a share or asset purchase.
• Warranties and indemnities – you must provide legal assurances about the business.
• Due diligence – there are various levels of due diligence where your buyer will assess your financial, legal and tax records, operations and organisational structure to verify key details, identify potential risks and validate valuation.
• Potential TUPE requirements for existing employees.
• Sale and purchase agreement – a legally binding contract that sets out the full terms of the deal, including the price, payment terms and takeover conditions.

Financial considerations

• Provision of clear financial records to be readied for due diligence.
• Valuation – you can use various methods to ensure your small business is accurately and fairly valued.
• Outstanding debt and liabilities – resolving existing debts, tax bills and contractual obligations to avoid potential delays and conflict.
• Working capital adjustments – ensuring liquidity for operational expenses matches what was agreed upon with the buyer.

Tax considerations

• HMRC reporting  – ensuring returns are filed and capital gains are reported to ensure liabilities are met and paid on time.
• Capital gains tax (CGT), VAT and stamp duty – check what CGT you need to pay on profit from the sale and what tax obligations you and the buyer have, including stamp duty, depending on the structure of the acquisition.
• Tax clearance – you can get advanced clearance from HMRC, either as a condition of the sale or to reassure the buyer that your business has no outstanding tax liabilities.

The best way to sell a small business quickly and efficiently is by getting specialist legal and financial advice as early as possible. This helps you meet your obligations promptly and prevent unwelcome surprises and obstacles.

What happens if my business still has debt?

If your business has debt, this won't necessarily cause issues with your sale, but you need to consider how you’ll address it. This depends on the type of sale, nature of the debt and potential agreements with prospective sellers. For example, in a share sale, the buyer takes on the business with all its liabilities, including debts (unless otherwise negotiated). The sale price may be adjusted to reflect this. In an asset-only sale, you often retain the debt, with selected assets being transferred to the buyer.

It’s good practice to review your current liabilities and, where possible, settle any debt or try to restructure it, which will make your business more attractive. It’s important to be proactive and transparent, disclosing all debts to potential buyers (if you can’t pay them off). Seek advice from accountants and solicitors, who can advise you on how best to address any debt, to ensure they don’t cause snags in negotiations.

Using a loan to strengthen your sale or fund a buyout

Using a loan during the process of selling a small business can strengthen your position by providing liquidity at key moments to prevent any holdups or buyer concerns. 

As the seller, a short-term loan can help cover final expenses, such as legal fees, tax bills or settling existing debts and liabilities. For prospective buyers, loans can help finance the purchase, whether it’s an acquisition loan, asset-based lending or a bridging loan. They may also want working capital to offer flexibility for operational needs or unexpected costs after the sale. 

Another finance option available is seller finance, which is an agreement between the seller and buyer, where the buyer provides a deposit to secure the purchase before paying the rest across an agreed number of monthly instalments. You can also agree to deferred payments and earnouts based on future performance. 

Whether used by the buyer or seller, commercial finance can bridge short-term funding gaps and cover key costs to minimise delays or risks of the sale falling through.

Using a flexible business loan from iwoca

We hope you found our guide on how to sell a small business useful. Used wisely, flexible finance solutions, like iwoca’s small business loans, can help buyers and sellers during and after the sale to cover various fees and expenses, ensuring a smooth process and benefiting both parties.

Iwoca is a leading business loan provider for UK companies, offering flexible funding solutions designed to fuel SME growth. We offer fast access to funds to cover legal costs and final expenses, settle corporate tax bills and provide working capital to prime your business for a successful sale.

Explore our popular Flexi-Loans, which offer quick and easy short-term funding to help you maximise your business value. You only pay interest on the funds you actually use, and you can repay the loan early at no additional cost.

Find out how to get a business loan with iwoca and use our repayment calculator to discover your likely monthly repayments.

Sources:

• Third of UK Business Owners Don't Know Their Company Value [Consultancy.uk]
• How to Value a Business [British Business Bank]
• Selling Your Business [British Business Bank]
• How to Value a Business for Sale in the UK [Business Matters]
• Steps to Selling Your Business [LegalVision]
• Seller Financing Unveiled [iwoca]
• How to Choose the Right Business Acquisition Finance [iwoca]

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