A joinery firm with £900,000 of turnover and £140,000 of profit goes on the market. Two interested parties, both serious. Six months later one has walked away over a lease, and the other has offered a price that assumes half the profit disappears when the owner does. The owner is insulted. The buyer is being rational.
Selling a business is not a transaction you arrange in the year you want to leave. It is a two-year project that happens to end in a transaction.
The buyer is pricing the business without you in it
Small businesses are usually priced on a multiple of adjusted profit, and the size of the multiple is mostly a judgement about how much of that profit walks out of the door with the seller.
Ask three questions about your own business and answer them honestly. Who do the customers think they are dealing with. Who makes the pricing decisions. Who do the staff actually take instructions from. If the answer to all three is you, the buyer is not buying a business, they are buying a job with your name on it, and they will pay accordingly.
Reducing owner dependency is slow and it is the highest-value work available to a seller. It means a second name on the quotes, a manager who deals with the largest customer, written processes, and a period where you visibly are not there and nothing goes wrong. It also means fixing the customer concentration if you can, because one customer at 40% of turnover is a discount in itself.
Two years of clean books is the price of being taken seriously
A buyer's accountant will look at your last three years. Work backwards from that.
Two years before you sell, start doing the dull things. Take the personal expenditure out of the company. Put a proper commercial salary through for yourself so the adjustment is small and easy to explain. Deal with any VAT or PAYE arrears. Write off the stock that is never going to sell and the debtor who is never going to pay, because a buyer will find both and will treat the discovery as a signal about everything else.
Get the paperwork in order too. Signed contracts with your main customers, written employment contracts for every member of staff, leases and licences in the company name, intellectual property actually assigned to the company rather than sitting with a freelancer who designed the logo in 2014, and the Companies House record accurate, including the register of people with significant control.
Then build a data room before anybody asks. Buyers read speed as competence. A seller who produces the last three years of management accounts within a day of being asked is negotiating from a different position than one who takes five weeks.
Structure decides the tax, and the tax is not an afterthought
Most sellers of limited companies want a share sale, because it is a clean exit and because of the capital gains treatment.
Business Asset Disposal Relief, formerly known as Entrepreneurs' Relief, reduces the capital gains tax rate on qualifying disposals, subject to a lifetime limit of £1m of gains. The conditions are strict and are tested over the two years before the sale: you generally need to hold at least 5% of the ordinary share capital and voting rights, be entitled to at least 5% of the profits available for distribution and assets on a winding-up, and be an officer or employee of the company.
The rate is the part that has been moving. The relief was charged at 10% for years. It rose to 14% for disposals on or after 6 April 2025, and legislation set a further rise to 18% from April 2026. This is exactly the kind of figure to check at the time of your sale rather than rely on from memory, because it has changed twice in quick succession and the difference on £1m of gains is substantial.
Three consequences follow. The two-year qualifying period means share reorganisations done shortly before a sale can cost you the relief. A spouse who works in the business and holds qualifying shares for long enough may have their own lifetime limit. And an asset sale from the company, rather than a share sale, can leave you paying corporation tax on the gain inside the company and then tax again on getting the money out.
Earn-outs move risk, and often move it back to you
Few small businesses sell for the whole price in cash on completion. What you are likely to be offered is some cash, some deferred consideration, and an earn-out linked to performance after the sale.
The logic is sound from the buyer's side. They are worried about exactly the thing that should worry you: that the profit is attached to the seller. An earn-out shares that risk.
The danger is that the target depends on decisions you no longer control. If your earn-out is based on net profit, the buyer's management charge, their reallocated overheads or their decision to invest in a new branch can all reduce the figure your payment is calculated from. Turnover or gross profit targets are harder to manipulate. Whatever the measure, get the accounting basis written into the agreement, get a right to information so you can check, and get a floor if you can.
You will also be asked for warranties about the state of the business and, usually, restrictive covenants stopping you competing or approaching customers and staff for a period. Expect a disclosure letter, because anything you disclose properly cannot later be claimed against. The temptation to disclose as little as possible is the wrong instinct.
Deals fall over late, and usually for the same three reasons
Most failed sales fail after months of work, when both sides have spent money. The causes repeat:
- The lease. The landlord will not consent to an assignment, or the lease has less time remaining than the buyer's lender requires, or it turns out to be contracted out of security of tenure and the goodwill is therefore rented.
- Funding. The buyer's bank reduces what it will lend after its own review, and the price the buyer can actually pay drops in the final fortnight.
- Something found in diligence. An undocumented arrangement with a key customer, an employment claim nobody mentioned, or a set of figures that does not reconcile to the bank statements.
You can pre-empt all three. Talk to the landlord early. Ask the buyer for evidence of funding before you take the business off the market. And run your own diligence on yourself first, because finding the problem in your own time is a different event from a buyer finding it in theirs.
Expect the whole thing to take six to twelve months from agreeing heads of terms, and expect to keep running the business at full attention throughout, because the one certain way to lose a buyer is for trading to fall while they are watching.
Where this shows up in the game
Business Baron prices a sale the way a buyer does, not the way an owner would like. The offer reflects profit, the quality of the record, whether the business runs without you, and how much of your trade sits with one customer. Spend three years building something that operates without you and the exit is worth more than the same profit built around yourself.