Selling a Business: What You Need to Know

Selling a business is a major financial and commercial decision for any business. Whether you are moving on to another venture, retiring, or simply ready for a change, preparing properly can make the sale process easier. 

There is no single process or timescale that applies to every business sale. The steps involved in selling your business can depend on the type and size of the business, whether you sell shares or assets, and the buyer. It can also depend on financing arrangements and the amount of due diligence required.

If you are considering selling a business in the UK, this guide is for you. It explains what to do before selling your business and how to negotiate your sale. 

Should You Sell the Shares or the Business Assets?

When selling a business, one of the key decisions is whether to sell the company’s shares or sell some or all of its business and assets.

Share sale

In a share sale, the buyer purchases the company’s shares. The company itself continues to exist, but ownership changes.

For the seller, the proceeds from selling shares may be subject to Capital Gains Tax (CGT), depending on the circumstances.

A share sale can also mean that the buyer takes over the company with its existing assets, contracts, liabilities, and obligations, subject to the terms of the transaction and due diligence.

Stamp Duty

A buyer purchasing shares through a stock transfer form may have to pay Stamp Duty at 0.5% where the transaction exceeds £1,000, subject to the applicable rules and exemptions. The buyer is generally responsible for the Stamp Duty rather than the seller. 

Asset sale

In an asset sale, the company sells particular assets or the business, rather than the shareholders selling their shares. The transaction may involve assets such as equipment, stock, property, customer contracts, and other business assets. 

The tax and legal consequences can be different from those of a share sale. Therefore, the structure of the transaction should be considered early when selling a business because it can affect both the seller and buyer.

Who Receives the Sale Proceeds?

In a share sale, the shareholders sell their shares and receive the consideration, subject to the transaction terms. In an asset sale, the company or business owner sells the relevant business assets or business operations, so the tax treatment and what happens to the sale proceeds can be different.

What Should You Do Before Selling Your Business?

Before looking for buyers, you should take time to prepare the business for sale. A buyer usually wants to understand how the business operates and how it makes money. They may also want to know the business’s financial performance and the risks associated with taking it over.

Good preparation can include keeping your financial records up to date, reviewing outstanding debts, checking contracts with customers and suppliers, and reviewing employee and payroll records. It can also include organising important business documents, identifying any legal or regulatory issues, and ensuring tax returns and payments are up to date. 

Moreover, consider whether the business can operate without you. If a business relies heavily on its owner, it may be more difficult for a buyer to take over. 

First, Get Your Business Valued

One of the most important steps when selling a business is knowing what it may be worth.

There is no single formula for valuing your business. The correct method depends on the type of business, its assets, profitability, cash flow, growth prospects, and the purpose of the valuation.

How Is a Business Valued Before a Sale?

Depending on the circumstances, valuation may consider maintainable profits, business assets, customer concentration, growth prospects, revenue and cash flow, market conditions, the level of debt and other liabilities, and intellectual property and other intangible assets. 

Remember, a valuation is not necessarily the same as the final sale price. The amount a buyer is willing to pay can also depend on financing, competition between buyers, negotiations, and the terms of the transaction.

Why You Should Prepare for Due Diligence While Selling A Business

Usually, a serious buyer wants detailed information about the business before completing the purchase. This process is known as due diligence. It allows the buyer to investigate the business’s commercial, financial, legal, and operational position. 

Additionally, financial due diligence can help identify risks and assess the financial performance of a business, while supporting the transaction valuation. 

A buyer may request information like annual accounts, bank statements, tax records, VAT records, payroll information, details of assets, legal agreements, and other business documents. 

Before selling a business, prepare these documents in advance. This can help you make the process more organised and may help identify potential problems before they become an issue during negotiations. 

How To Find a Buyer in the UK

You should know that finding a buyer is not simply about accepting the highest initial offer. You may consider potential buyers such as competitors, employees, existing management, investors, individual entrepreneurs, and other businesses in your industry. 

The right buyer may depend on your objectives as well as the price. For instance, you may want the business to continue operating under its existing name, protect jobs, or remain independent after the sale. These considerations can influence which offer is most suitable.

What Is the Best Way to Negotiate the Sale

Another crucial element of selling a business is negotiation. Once you have identified a potential buyer, the negotiation part comes in. It may cover much more than the headline purchase price.

Important terms can include purchase price, payment structure, completion date, warranties and indemnities, treatment of employees, treatment of existing contracts, assets and liabilities included in the transaction, and other factors. 

Professional legal and financial advice can be particularly important at this stage because the wording of the agreement can affect your obligations after completion.

What Happens to Employees When a Business Is Sold?

Consider employment law if selling a business or a business transfer affects employees. The Transfer of Undertakings (Protection of Employment) Regulations, often known as TUPE, may apply when a business or part of a business transfers to a new employer. 

When TUPE applies, employees generally transfer to the new employer with their existing employment terms and certain employment rights protected, subject to the specific circumstances and statutory rules. Also, employers may have information and consultation obligations before a transfer takes place.

The exact requirements depend on the circumstances. So, employment advice should be obtained where employees are involved in the transaction.

What Tax Do You Pay When Selling a Business?

The tax treatment depends on the type of business, how the transaction is structured, and what is being sold. 

Capital Gains Tax

If you are an individual selling a business or shares, you may have a CGT liability on any taxable gain.

The main CGT rates for individuals are generally 18% and 24%, depending on the circumstances and taxable income and gains amount.

Business Asset Disposal Relief

Business Asset Disposal Relief may reduce the CGT rate on qualifying disposals. For qualifying disposals made from 6 April 2026, the relief applies a rate of 18%. Specific conditions must be met, so not every business sale will qualify.

For example, different conditions can apply depending on whether you are selling all or part of a business or selling shares in a company.

Since the tax consequences can be significant, it is sensible to establish the likely tax position before agreeing the final structure of the sale.

Other Taxes and Considerations

When selling a business, there may be other taxes that need to be paid. Depending on the transaction, you may also need to consider Corporation Tax, VAT, Stamp Duty Land Tax where relevant, Income Tax, National Insurance, and tax reliefs that may be available. The relevant taxes depend on whether you are selling shares, business assets or the business itself, and on the assets and parties involved. 

Review the tax treatment based on the actual structure of the transaction rather than assumed from the sale price alone.

How Long Does It Take to Sell a Business?

There is no standard time required to sell a business. A simple sale may progress relatively quickly, whereas a larger or more complicated transaction can take longer.

The timescale can be affected by preparation, finding suitable buyers, valuation, financing, due diligence, legal documentation, tax advice, negotiations and the complexity of the transaction. 

What Happens After the Sale?

Your responsibilities after selling a business depend on how the transaction was structured and what you have sold. 

For instance, if the entire shareholding of a limited company is sold, changes may need to be made to the company’s directors or company secretary, and Companies House records may need updating. 

Furthermore, if you are selling as a sole trader or partnership, you may have different responsibilities for notifying HMRC and completing your tax returns. Therefore, the post-sale steps should be planned before completion rather than left until afterwards.

Tax and Registration Records 

Depending on the business structure, you may need to notify HMRC that you have stopped trading or update your tax records. A sole trader, for example, may need to tell HMRC that they have stopped being self-employed and complete any outstanding tax returns and payments. 

How Accounting Firms Can Help When Selling A Business?

Selling a business can involve accounting, tax and financial decisions that are difficult to assess on your own. If you are considering selling your business, getting professional accounting advice early can help you understand your financial position and prepare the documents you need. 

You can find a qualified accountant at Accounting Firms. Our platform makes it easier for you to identify accountants that match your requirements. Enter your postcode, compare accountants’ services and pricing, and then choose one in no time.

Conclusion

Selling a business involves much more than finding a buyer and negotiating a price. You need to understand its value, prepare the business, prepare for due diligence, consider whether a share or asset sale is appropriate, and understand the tax and legal implications.

Moreover, there is no single approach that works for every business. The earlier you prepare, the more time you have to organise your records, identify problems, and make informed decisions before entering negotiations. 

Disclaimer: The information provided on AccountingFirms.co.uk is for general informational purposes only and should not be considered professional accounting, tax, or legal advice. Always consult a qualified accountant or tax adviser for advice tailored to your individual circumstances.