How Much Does It Cost to Sell a Business in the UK?
Selling a business involves various elements, each with financial implications. From legal fees to due diligence to taxes, several factors contribute to the overall cost of exiting your company. In this article, we'll delve into the key costs associated with selling a business in the UK, providing you with a starting point for understanding the expenses likely to be incurred on your exit journey.
Legal
Engaging solicitors or legal advisors is essential to navigate the legal complexities of selling a business. Legal fees cover reviewing contracts, negotiating terms and warranties with buyers, ensuring compliance with regulations, and facilitating the smooth transfer of ownership.
The cost of legal services can vary based on the complexity of the deal and the hourly rates of the professionals involved. Expect to budget a few thousand pounds for simple sales and tens of thousands for a larger business or more complex sale.
Accounting
It is likely you’ll need to engage the services of your accountant above and beyond your usual level. You may require additional financial statements, tax returns, interim accounts, and other documentation necessary for the sale. Accountants can also offer valuable advice on structuring the deal to minimise tax liabilities and maximise returns.
The cost of these services varies depending on the complexity of the financial arrangements involved. Additional accounting fees will vary depending on the level of additional support needed and the rates your firm charges.
Due Diligence
Buyers conduct due diligence to verify the accuracy of the information provided by the seller and assess the risks associated with the transaction. It’s a detailed and invasive process that will require a lot of your time rather than your money.
While due diligence is primarily the responsibility of the buyer, sellers may incur costs associated with providing documentation, answering inquiries, and addressing any issues that arise during the process. You may need the support of your accountant and your lawyer during this process.
Depending on the size of the deal, buyers will spend a lot of money lifting every stone and creating a watertight set of contracts. When I sold my last company, the buyers spent an estimated £100k on combined due diligence audit and legal fees.
Valuation
Before putting your business on the market, it's essential to determine its value. You may be able to use your industry knowledge alongside valuation tools to ascertain your business value, or you may need to use your accountant or a valuer to assess factors such as assets, liabilities, earnings, market conditions, and growth potential.
There are various methods of valuing a business, such as discounted cash flow, asset valuation, times revenue method, price-earnings ratio, industry best practice profit multiple, to name but a few. Valuation costs can vary depending on the size, complexity, and industry of the business. If not managed in-house or with your accountant, external valuation fees can range from a few hundred to several thousand pounds.
Broker or Agent
Some business owners choose to work with business brokers or agents to facilitate the sale process. Brokers and agents are middlemen who specialise in selling businesses, but this comes at a cost. Brokerage fees are typically calculated as a percentage of the sale price and can range from 5% to 15%, depending on the size and value of the business. There is also usually an abandonment fee if you change your mind.
Business Advisor
A professional advisor will ensure you get the best deal, ensuring nothing is left on the table. They’ll guide you through the whole selling process, and do not require a broker commission. Business advisors are usually pay as you go by the hour or day, and you use them as much or as little as is required. Advisor fees are negligible given the extra value they bring. In fact, you’re likely to exit with more money and better terms than if you go it alone.
Marketing and Advertising
Marketing your business to potential buyers is crucial for achieving a successful sale. This may involve advertising on relevant platforms, creating marketing materials such as brochures or presentations, and attending networking events. While some sellers choose to handle marketing internally, others may opt to engage marketing professionals or agencies, incurring additional costs.
Tax
After successfully selling your business, you’ll need to pay tax on your proceeds. At the time of writing, Business Asset Disposal Relief (formerly Entrepreneur’s Relief) is applied at a rate of 10%, as long as you meet HMRC’s eligibility criteria. We recommend speaking to your accountant or tax advisor for specialist support and guidance.
Summary
Selling a business in the UK incurs various costs that should be considered and budgeted for in advance. While these expenses can add up, they are essential investments in ensuring a smooth and successful sale.
Working with experienced professionals such as solicitors, accountants, and advisors can help navigate the complexities. By understanding the costs involved and planning accordingly, you can embark on this exciting exit journey with appreciation of what’s ahead.
Need help selling your business? Get in touch.
