While many of us think that the UK’s business landscape is dominated by big-name nationals, the fact is that the vast majority of businesses (90+ percent) are actually operated by small business owners with just a handful of employees.
Which also brings us to another commonly held misconception: many sole traders believe that a business only has value to a buyer if it’s a limited company with a wealth of assets and a long history of trading. In practice, this means that sole traders often feel that their only option is to quietly wind down their business in the event that they opt for a career change or are planning for retirement.
Simply put, any sole trader can choose to sell on their business or its assets outright to a buyer for a mutually agreed sum – whether that’s just a few hundred pounds or tens of thousands. If you take a look at business for sale websites like Bizdaq, you should be able to find a business that’s comparable to yours and start thinking about what kind of price you could command. Make sure you take professional financial or legal advice if you’re unsure about how a sale might affect your tax obligations.
Get the valuation right
Arriving at a fair market valuation can be tricky; there are a few frequently used methods, but you’ll also need to apply a dollop of common sense. The simplest valuation method of all is a straightforward assets-minus-liabilities exercise (asset valuation). It’s primarily used where a business has tangible assets like property. The most widely used method is probably the ‘multiple of profits’ approach which applies a sector-specific profit multiplier to the business’s adjusted net profits to arrive at a figure.
Once you have a ball-park value (you could try the Bizdaq valuation tool), you might then feel it’s worth making a few changes to see if you can bump up the perceived or actual value of your business. The best way of doing this is to bring more business in and increase profitability, although even introducing a few refinements, such as streamlining operations and updating customer records could make a difference to overall saleability, as well as speeding up the process.
Take away the owner
One thing that often puts buyers off acquiring a sole trader business is when the owner appears to be inextricably entangled with the very essence of the company. If a buyer believes that the owner can’t be extricated from the business without destroying the basis of its profitability, they won’t want to touch it with a bargepole. So, before committing to sell, consider whether it would be feasible for a third party to run your business. Does it require niche skills or specialist knowledge? It’s always going to be more difficult to sell on a business like a woodcarving enterprise or a calligraphy studio than a coffee shop.
Consider your USPs
Even if you think you don’t have much to sell on – maybe you rent your premises, own a modest amount of equipment and have a small customer base – you may be surprised at the buyer response. One worthwhile exercise is to look at your business through a buyer’s eyes. Consider how much it would cost to set up a business like yours from scratch – acquiring premises, training staff and establishing a brand, for instance. Some start-ups may well think that buying a business that’s already up and running, even if it’s not as profitable as they’d like it to be, would make a handy shortcut to a viable operation.
It may be that after giving it due consideration, you decide that selling your sole trader business wouldn’t return the kind of profit you’d need to make it worth your while. But, it’s definitely a process you should engage with – you might be in for a windfall!
Posted on March 22, 2019 | selling, sell a business, sole trader, retirement, value business