Planning to sell your business (succession planning and exit readiness)

Last updated: 20 April 2017

If you own a business, you might eventually think about selling it because you want to leave or retire.

If you're thinking about this, you should create a plan. This is known as 'succession planning' and 'exit readiness'.

Your plan could include either:

  • who you'll sell your business to and how you'll sell it
  • who will replace you

Every business will be different but there are common things you can think about.

Alternatively, you might want to close your business.

The right time to sell

You should think about whether it's the right time to leave or retire. This includes the impact selling your business will have on:

  • your business
  • your family or employees
  • your business's shareholders (if you have any)
  • your suppliers, distributor or customers
  • the community your business serves (socially, economically or environmentally)

Planning to sell

It's important you create a plan as early as possible because:

  • it could protect the value of your business when you come to sell it
  • leaving your business could take a long time

It will also protect your business in the event of illness, injury or death. Your plan will also help you to better understand what you'll need to do to leave or retire.

Your plan should include:

  • any role you intend to take in your business after you leave or retire
  • a timeframe for events
  • details of who you're passing your business on to (if this is your plan)
  • the risks your business might face due to you leaving
  • how you'll tell your customers, clients, board or staff (if you have them)
When creating your plan, include a period of time where you can mentor or coach the person replacing you.

You'll also need to gather important documents such as your:

  • accounts
  • insurance documents
  • contracts

Selling your business

When thinking about selling your business or the part of it you own, you should think about:

  • how much of the business you own
  • your business's value
  • whether it's a good time to sell
  • who might be interested in buying your business
  • what to do with your shares (if you have shares in your business)
  • anything your business owns (assets) and the value of this
  • any other brands or businesses you own (subsidiaries)
  • how you'll sell your business and be paid for it

Once you've agreed a sale, you'll also need to think about telling your staff and HMRC.

How much of the business you own

If you own 100% of your business, you'll be selling your entire business. If you only own part of your business – for example 50% – you could sell your part of the business without completely changing who owns the business.

Shares

If you have shares in your business, you'll need to decide whether you want to sell them all. If you choose to keep some of your shares this could mean you:

  • will benefit if your business continues to grow
  • have some say into how your business is run in future

Keeping some of your shares might also be a condition of any sale, and could assure any buyers that your business is worth investing in.

There's also a chance your shares could lose value once you leave your business.

Your business's assets

This will include:

  • contracts
  • employees
  • customers
  • equipment
  • premises
  • vehicles
  • stock
  • intellectual property
  • other businesses or brands you own

If your business doesn't have any of these things, you might consider closing your business instead.

Brands or other businesses you own (subsidiaries)

If your business owns any brands or other businesses these are known as 'subsidiaries'. You could decide to only sell a subsidiary business or brand.

This means you would still be in control of a 'slimmed down' version of your business.

How you sell your business

There are different ways of selling or transferring ownership of your business. Most businesses will do this through:

  • selling it to another person or business
  • transferring to a family member
  • employee buy outs
  • management buy outs

Selling to another person or business is also known as selling to a 'trade buyer'. Trade buyers will be interested in your business's:

  • intellectual property, such as technology
  • assets, such as premises and equipment
  • employees
  • customers
  • brands
  • contracts
  • licences

Depending on the nature or size of your business there might be other ways of selling it. This includes:

  • selling to a private equity house
  • listing your business on a stock exchange

Private equity houses look to buy businesses that are profitable or have the potential to be profitable. It's important you're comfortable with how the private equity house intends to run your business after you've left.

You'll only be likely to list your business on a stock exchange if your business is large.

You can find more information on the different ways of selling your business on the Scottish Enterprise website.

Payment

It's important you think about how you would like to be paid when selling your business. For example, you might not be paid all the money in one go. This is called 'deferred consideration'.

Payment using deferred consideration can mean the person buying your business will agree to pay you part of the money upfront. The remaining amount will follow later, either in one lump sum or in stages.

Sometimes conditions can be applied to these payments, for example they could be related to how the business performs after you sell it.

Choosing your replacement

When choosing your replacement you need to think about whether:

  • they have the skills and experience required
  • they'll bring new skills and experience to the role
  • your employees or customers will work with them

You'll also need to think about whether your investors or board (if you have them) will be happy with your choice.

Family-run businesses

If your business is a family-run business, you might be limited to choosing a family member as your replacement. It's important think about whether:

  • this person wants to run your business
  • they have the skills to do the job
  • another employee could do a better job
  • other family members will be happy with your choice

Help and advice

If you're planning to leave or retire from your business it's worth speaking with any professional advisors you have, for example your lawyer or accountant.

It's also worth speaking to any other business owners you know who have been through the same process.

Succession expert support

Scottish Enterprise offer free, one-to-one advice on:

  • succession planning
  • the range of different ways you can sell your business

You can find more information about this service on the Scottish Enterprise website.

Further information

You can find more advice on selling your business on the Business Gateway website.