For some people, starting a business is about bringing their dream to reality. For others, it is about creating something that they will ultimately sell for the best possible price, before moving on to the next idea. If the second approach applies to you, then you need to plan a profitable trade exit from the earliest stage.
What is a trade sale?
A trade sale is a standard exit option for a business owner. It allows you to withdraw from the company and can open prospects of collaborating on larger projects. It usually means the disposal of shares and assets of the companies’ package and they are typically made from business to business, although some can be made to the public.
A trade sale has many benefits when planning your exit. It offers an exit strategy where no internal succession route is required. You can also get a better strategic fit when you sell to a same sector trade buyer, and this can also speed up the process. And it generally opens an excellent choice of purchaser and potential return on the sale.
Common types of trade sale
There are two main types of trade sale to think about when you are considering this route for your business – share sale and sale of trade and assets.
In a share sale, the buyer will take over the entire company including assets, liabilities and the history of the business. In the UK, it is usually more tax efficient for the seller to do this because the gain on the exchange will be subject to capital gains tax and this is the personal liability of any shareholders.
In a sale of trade and assets, which is often better for the purchaser, the company sells assets and liabilities at an agreed valuation. There is often the need for specialist advice for the seller including how to value the company. It can also lead to a higher tax bill for shareholders and capital gains tax if it isn’t handled correctly. Professional fees to wind down the business may also have to be paid by the seller.
Planning from the beginning
While you may not plan which type of trade sale you will use from the start, it is a good idea to plan from the beginning if one of them will be the eventual path you will take.
Planning makes sure you have the right structures and processes in place so when the time is right to make the sale, it is a simple process. Look at the price you want to achieve and when you want to sell and factor this into your planning at the start.
A big part of this is to get a strong management team in place who can add value to the business and help with the sale when the time comes. You may want to have people with specialist areas such as sales directors and financial directors to help ensure the simple transfer of the business when the time to sell does come.