The complete guide to selling a UK business

Key points

• Preparation and a realistic view of value come before approaching anyone.
• Different buyers want different things. The right buyer depends on your objectives.
• Confidentiality is managed through the process, not assumed.
• Offers are compared on value, structure and certainty, not on the headline alone.
• Keep running the business well throughout: a dip in trading during a sale weakens your position.

What should you do before starting a sale?

• Be clear about your objectives: price, timing, certainty, the future of your team and customers, and your own role afterwards.
• Understand what the business is worth, and why. Our complete guide to valuing a small UK business explains how value is built up, and how a headline value becomes what you receive.
• Prepare the business. Owners often benefit from beginning 12–36 months before a planned sale. Our complete guide to preparing a business for exit covers the steps.
• Take personal tax and financial advice early. Some planning has to be in place well before a sale.

Who buys owner-managed businesses?

Trade buyers – businesses in the same or a related sector. Typically looking for: Customers, capability, location or scale that fits their existing business. Points to consider: May see the most value in combination; may also be competitors, so confidentiality matters.

Individual buyers and acquisition entrepreneurs. Typically looking for: A business to own and run. Points to consider: Often rely on borrowing and deferred consideration; the owner's handover matters a great deal to them.

Acquisitive groups and investors buying control. Typically looking for: Businesses to build on or combine. Points to consider: Usually structured processes and detailed due diligence.

Management (a management buyout). Typically looking for: To own the business they already run. Points to consider: Know the business well; funding the price is usually the main challenge.

Employees, through an employee ownership trust. Typically looking for: A transfer of control to an employee trust. Points to consider: Specific legal and tax rules apply; take specialist advice.

Family members. Typically looking for: Succession within the family. Points to consider: Often combined with gradual transfer; legal and tax advice is essential.

The right buyer depends on your objectives. The highest price may come from one type of buyer, and the best fit for your team and customers from another.

How do you keep a sale confidential?

News that a business is for sale can unsettle staff, customers, suppliers and competitors. Confidentiality is protected by controlling who learns what, and when:

1. An anonymous summary first. A short description that does not identify the business is shared with potential buyers.
2. A confidentiality agreement (a non-disclosure agreement) is signed before identifying information is shared. Your legal advisers can advise on its terms.
3. Staged disclosure. The most sensitive information – customer names, staff details, pricing – is shared only with serious buyers, and usually only at the due diligence stage.
4. Controlled contact. Buyers deal through the adviser, not with your staff or customers, unless you agree otherwise.

Proplexo view: confidentiality is managed, not assumed

A confidentiality agreement is necessary but not sufficient. Most of the protection comes from the order in which information is released: little at first, more as each buyer shows they are serious, and the most sensitive only when a deal is close.

Planning that sequence before the first approach – what each buyer sees at each stage, and who in the business needs to know – usually protects the business better than relying on a signed agreement after information has already been shared.

What is an Information Memorandum?

An Information Memorandum (IM) is the main document that presents the business to serious buyers, after they have signed a confidentiality agreement. A good IM is clear, accurate and evidenced. It usually covers:

• the business: history, activities, customers, market and position;
• the people: the team and management structure, and the owner's role;
• the financial record: recent results, normalised earnings and the adjustments behind them, and the current trading position;
• the opportunity: growth prospects and how a new owner could develop the business;
• the process: what kind of offer is invited, and the timetable.

Everything in an IM may be tested in due diligence, so it should be accurate. An over-optimistic IM can cost credibility and weaken the seller's position later in the process.

How are buyers approached?

A structured process typically:

1. identifies potential buyers that fit your objectives;
2. approaches them confidentially with the anonymous summary;
3. shares the IM with those who sign a confidentiality agreement and show genuine interest;
4. holds meetings with the most credible buyers;
5. invites offers by an agreed date, so they can be compared.

Running several conversations in parallel can improve competitive tension and the seller's negotiating position compared with dealing with one buyer at a time.

How should you compare offers?

Compare offers on three things:

• Value: the headline price, and what it becomes after cash, borrowings and the working capital adjustment.
• Structure: how much is paid at completion, how much is deferred (a fixed amount paid later), and how much is conditional on future performance through an earn-out.
• Certainty: the buyer's funding, the conditions attached to the offer, the depth of due diligence they will need, and their track record of completing.

Illustrative example I: two offers for the same business

Illustrative example. The offers are fictional. The figures are round numbers chosen to show the comparison; no earnings are shown and they say nothing about what any real business is worth. Both offers assume the same cash-free, debt-free basis and normal level of working capital.

Headline price. Offer 1: £1,200,000. Offer 2: £1,400,000.

Paid at completion. Offer 1: £1,000,000. Offer 2: £800,000.

Deferred – fixed, payable over two years. Offer 1: £200,000.

Earn-out – conditional on profit targets over three years. Offer 2: £600,000.

Buyer's funding. Offer 1: Own funds, confirmed. Offer 2: Borrowing not yet agreed.

Due diligence required. Offer 1: Focused. Offer 2: Comprehensive.

What the example shows:

• Offer 2 has the higher headline, but less is certain. £200,000 less is paid at completion, and £600,000 depends on future profit targets that may not be met – and that you may not control once the business is sold.
• Offer 1's deferred £200,000 is fixed: it is paid later, but it is not conditional on performance.
• Certainty of completion differs too. Confirmed funding and a focused due diligence scope reduce the risk that a deal falls through or is renegotiated.
• Depending on your objectives, Offer 1 may be the better offer even though its headline is lower.

Proplexo view: the best offer is rarely just the highest headline

A headline price is the easiest number to compare, and the least complete. Two offers can differ by a wide margin on paper and much less once timing, conditions and the chance of completing are taken into account.

A useful discipline is to set out, for each offer, what is received at completion, what is fixed but later, what is conditional, and what could stop the deal. That makes the trade-offs visible, and keeps negotiation focused on the terms that matter to you rather than on the headline alone.

What goes into heads of terms?

Once you accept an offer in principle, the main terms are recorded in heads of terms:

• the price and how it is calculated;
• the structure;
• key conditions;
• exclusivity – a period during which you agree not to negotiate with other buyers;
• the timetable;
• confidentiality.

Heads of terms are usually not legally binding, apart from certain provisions such as exclusivity and confidentiality. Your legal advisers will confirm the position. Because exclusivity reduces your negotiating position, it is worth settling the important terms before granting it.

What does due diligence look like from the seller's side?

Once heads of terms are agreed, the buyer's advisers examine the business in detail. As the seller:

• Expect detailed questions on earnings, customers, working capital, debt-like items, forecasts, contracts, people and tax.
• Prepare information in advance, organised in a data room. The information buyers ask for is set out in our guide to preparing a business for exit.
• Answer promptly and accurately. Delays and inconsistent answers cost time and confidence.
• Raise known issues early. Issues a buyer discovers late can be harder to manage and may cause the price or terms to be revisited.

Some sellers commission vendor due diligence – an independent review before going to market – to surface issues early and give buyers confidence. Whether it is worthwhile depends on the size and complexity of the business.

The sale agreement and completion

The sale agreement, drafted and negotiated by the legal advisers, sets out what is sold, how the price is calculated and paid, and the protections given to the buyer. Those protections – warranties and indemnities – and any restrictions on you after the sale are matters for your legal advisers.

The final price is calculated using completion accounts (a balance sheet drawn up at completion) or a locked box (the price fixed by reference to an earlier balance sheet, with protections against value leaving the business in between). Your legal advisers will explain which applies and how. Either way, understanding the normal level of working capital in advance avoids surprises.

What happens after the sale?

• Handover: an agreed period to transfer relationships, knowledge and routines to the new owner.
• Deferred payments and earn-outs: fixed deferred payments arrive on their agreed dates. Earn-out payments depend on the agreed targets, so the definitions in the sale agreement matter.
• Restrictions: sale agreements commonly restrict the seller from competing with the business or approaching its customers and staff for a period. Your legal advisers will explain the terms.
• Tax: the tax on the sale depends on your circumstances and the structure of the deal. Your tax adviser can explain how it applies to you.

How long does it take to sell a business?

It depends on:

• how prepared the business is;
• the buyers involved;
• the deal structure;
• the speed of due diligence and the legal work.

Preparation can take months or years. Once a business is ready and the process starts, finding buyers, agreeing terms, due diligence and completion typically take several months. Our guide to the business sale process sets out each stage.

Proplexo view: keep running the business as if you were not selling

A sale process takes a great deal of the owner's time, and it is easy for trading to slip while attention is elsewhere. A buyer who sees results weaken during the process will question the earnings they are being asked to pay for, often at the point when the price is being finalised.

Delegating day-to-day management for the duration of the sale, and using an adviser to run the process, can help protect focus on trading while the sale process runs.

What does it cost to sell a business?

Costs typically include legal fees and the adviser's fees, and sometimes vendor due diligence. Proplexo's Full Sale Advisory is charged as an engagement fee and a completion fee, agreed before the engagement begins.

How Proplexo can help

Our Full Sale Advisory is a complete sale process, from preparation and valuation through buyer engagement, negotiation, due diligence and completion. We never approach buyers about your business without your agreement. We only disclose identifying information about your business to prospective buyers where you have agreed that we may do so.

If you are earlier in your thinking, start with a free confidential conversation about your plans, likely timescale and next steps.

This article is general information for owner-managed businesses, not advice on your circumstances.