So the time has come when you are giving serious consideration to selling your business.  For many business owners such a sale will first and foremost be an emotional challenge.  There will also likely be significant commercial and legal issues and often tax consideration with which to grapple.

With all that potential complexity it is very easy for any business owner who has not sold a company before to be naïve.  There are common myths that need to be dispelled before taking the first steps in the process.

Myth One: I will know the likely buyers for my business.  I can simply make contact myself and I do not need advisers until I have struck a deal with the prospective buyer.

There is some truth to this myth and some owners do indeed (and successfully!) sell their company without engaging the services of a corporate adviser or merger broker.

An adviser (if the right sort of adviser) will be asking you tough questions that might make you feel uncomfortable. The right person will also expect to be appropriately rewarded. These factors may encourage you to believe myth one.

But having a skilled third party to help you prepare your business for sale, to present it to best advantage and to find buyers not known to you, could be critical to a successful sale.

Competitive tension is the best way to drive up a price in any negotiation.  Finding a strategic buyer may mean an unexpectedly good price.  The savvy of a skilled negotiator who can help you play a careful game may also be invaluable.

You will only sell your company once, it will pay you to do it properly.

Myth Two: I will be paid what I want for my business up front and can leave after a very short handover period.

The wise and experienced buyer of a company will very likely want to defer a significant part of the price: 50% is not uncommon particularly for any people business.  It may well be that they will want you to stay on for a significant period and may tie the price to financial performance during that time (a so called earn out).

Making yourself redundant as the business owner before you look for a buyer will be your best bet to avoid these risks.  If you have an excellent management team and a growing and very systemised business with good financial information you will attract bigger and better resourced buyers.

These buyers are more likely to have cash resources or access to bank facilities to be in a position to pay you more upfront.  They may even pay you everything upfront and allow you to walk away from completion.  But that is the exception not the rule.

For most owners the sale will pose significant risks.  The headline deal price may be seductive but you may not get any of the deferred payment.

Myth Three:  I will only pay 10% tax on the proceeds of sale.

You will certainly hope and expect that the sale proceeds will bear tax at entrepreneur’s rate of 10%.  However, this is not guaranteed and you will want to have taken expert advice well in advance to give the best possible chance of benefiting from this rate of tax.

The biggest obstacle may be the reluctance of the buyer to take the risk of buying the shares of your company.  The buyer, with cautious professional advice, may say they will only buy the assets of your business.  This is because a purchase of shares means the buyer will inherit all historic liabilities.

There are many lifestyle businesses (to use a euphemistic expression of the savvy merger broker).  If the dividing line between personal and business expenditure has been overstepped the buyer may decline to buy your company because there will be hidden tax risks.  In any event the buyer will expect tax indemnities which could leave you very vulnerable particularly if you are selling with deferred or contingent consideration.

If you must agree an asset sale there is likely to be a “double” tax charge and the need to wind-up your company.  Corporation tax (currently 19%) will need to be paid by the company on the sale proceeds (of goodwill) and then tax (hopefully at 10%) for you personally on the sums paid out on the dissolution of the company.  You will also need to budget for an insolvency practitioner to act as liquidator.

There is much to ponder for you as a business owner thinking of selling your company.

As I wrote this blog I learned that the word myth originates from the Greek word mythos meaning a tale or true narrative.  Each of the three myths discussed in this note may be the true narrative for you and your business.

As the meaning of the word myth has evolved (now meaning a superstition or fantasy) so must the approach of the wise business owner, if he or she is to avoid their own Greek tragedy.

For further information please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 or email everyman@everymanlegal.com