October 26th, 2012 / Insight posted in

Selling a business to a worker

My wife and I took over a small bankrupt business six years ago. We have built it up with the help of our one employee, a 21-year-old girl, to an annual turnover of almost £100,000. We want to retire and sell the business to the girl. How can she raise the money?

First you need to find out what the business is worth, writes Jon Sutcliffe, a partner at Kingston Smith. You also need to think about whether the business will be able to make a profit when you retire, as it will have to hire someone to replace you. Together, this will help you work out the sale value. There are several ways in which your employee could raise the money to buy the business, assuming she does not have enough savings to buy it outright. The main sources are a bank loan or a business angel, or you could arrange for her to pay you gradually over several years. She will probably need help in raising the money – an accountant or her local Business Link will be able to give her advice. As the amount is not huge, there is a good chance that a bank will be prepared to provide a small-business loan, but it will probably want some reassurance that she will be able to make the repayments. A cashflow or profit forecast should be enough to satisfy the bank. Your business bank manager is the best place to start, as he or she will already know the business. A business angel may be willing to put up the money if the returns are likely to be attractive. The alternative, if you and your wife agree, is for the money to be paid in instalments, or “deferred consideration”. You would not get a lump sum immediately, of course, but the business’s profits should be enough to fund the payments to you, say on a monthly basis, without the need for a loan. This will probably be the most attractive option for your employee but it does depend on how long you are willing to wait for the money