If you are looking to sell a lettings business, we have put together a guide. Belvoir Group has an acquisitions team: we are actively looking for sales & lettings businesses on behalf of the business owners in our group & may be able to save you a lot of time and energy. If this is of interest, please let us know that you would like to sell your business.
Selling a lettings business in the UK involves several stages and considerations. Here is a step-by-step guide to help you navigate the process:
1. Preparation:
- Business Valuation: Understand the value of your business. You can hire a professional to assess its value based on assets, profits, market position, and other factors
- Documentation: Get your financial statements, tax returns, leases, contracts, and other relevant documents in order. This will be essential for potential buyers to review
- Legal: Ensure there are no pending legal issues that can deter a potential buyer
2. Decision:
- Selling Method: Decide if you will sell the business by yourself, use a business broker, or hire an M&A (Merger & Acquisition) advisor
- Business Structure: Determine if you are selling the business as an asset sale or a share sale
3. Marketing:
- Information Memorandum: Create a detailed information memorandum. This is a document showcasing the details of the business, its strengths, financial details, etc
- Advertise: List your business on business sale platforms, newspapers, or trade publications. A broker can help in discreetly reaching out to potential buyers
4. Negotiation:
- Interested Parties: Once potential buyers show interest, you may need to provide them with more detailed information under a non-disclosure agreement (NDA)
- Offers: Entertain offers and negotiate terms
5. Due Diligence:
- Once an offer is tentatively accepted, the buyer will usually undertake a due diligence process to verify the information you’ve provided and ensure there are no hidden issues
6. Sale Agreement:
- Drafting: Work with a solicitor to draft Heads of Terms & a sale agreement detailing the terms and conditions of the sale
- Terms: Ensure you’re clear on terms such as the payment method, handover period, any warranties or indemnities, etc.
7. Completion:
- Transfer the assets or shares to the buyer, receive payment, and hand over the control of the business
- If there’s an agreed-upon transitional period, work with the new owner to ensure a smooth transition.
8. Post-Sale:
- Inform all stakeholders (employees, customers, suppliers) about the change in ownership
- Fulfill any post-sale obligations mentioned in the sale agreement.
9. Tax Implications:
- There will be tax implications, depending on how the business was sold (asset vs. share sale) and the profit made from the sale. Engage with an accountant to understand and manage these implications
10. Finalize:
- Close or transfer any business accounts, settle outstanding debts, and ensure any remaining obligations are fulfilled. If you are undertaking a share sale, completion accounts will be required either 30 or 60 days following completion
How are Lettings Businesses Valued in the UK?
Valuing a lettings (or property management) business is different from valuing businesses in many other sectors, largely because the primary assets of a lettings business are its managed properties and the associated future income streams from management fees.
Here’s a basic outline of some of the methods of valuing lettings businesses in the UK:
Multiple of Annual Management Fees:
The most common method is to value a lettings business based on a multiple of its annual management fees (often called ‘annual managed turnover’). The exact multiple can vary but is often in the range of 1 to 2 times the annual managed turnover. The multiple used will be influenced by several factors including:
- Local market conditions
- The number and type of properties under management
- The quality and longevity of the landlord client base
- The terms of the management contracts
- The business’s growth trajectory and profitability
Net Profit Multiplication:
Some valuations might be based on a multiple of net profits, especially when the lettings business has diversified income streams or significant scale.
Quality of Rental Contracts:
Contracts that run for longer terms and with reliable landlords and tenants might add value to the business. In contrast, shorter-term contracts or contracts with problematic landlords/tenants might reduce value. In addition, tenant rent arrears will be taken into consideration.
Other Revenue Streams:
Some lettings agencies might also make money from other sources like tenant find fees, insurance sales, maintenance services, or sales commissions if they also act as estate agents. The reliability and profitability of these income streams should be considered in the valuation.
Client Retention & Reputation:
A business with a high client retention rate and strong reputation in the local market can command a higher valuation. Conversely, high turnover or poor reviews can depress value.
Operational Costs:
A lean, efficient operation with manageable overheads might be valued higher than a similar-revenue agency that has higher costs or less efficient operations.
Local Market Conditions:
The health of the local property market and broader economic conditions can influence the valuation. An active rental market in a growing city can mean higher potential value than a stagnant or shrinking market.
Non-compete Agreements:
If the current owner is willing to sign a non-compete agreement, it might add value as it assures the potential buyer that the current owner won’t immediately start a competing business.
Assets & Liabilities:
Physical assets (like office space, cars, or equipment) and liabilities (debts, pending lawsuits, etc.) will also influence the valuation.
Due Diligence:
Due diligence is a process of examining & verifying the business offering. This can also affect the valuation (ie if due diligence shows that the financial situation of the business is different to what’s stated or if there are legal or HR issues that might affect the business).
It can be extremely beneficial to engage a professional business valuer or an industry-specific consultant when looking to get an accurate valuation of a lettings business. They will be able to provide a detailed analysis based on the specific circumstances of the business and the current market conditions.
Who would be interested in buying a lettings business?
There are several parties that might be interested in buying a lettings business, each with their own motivations:
Existing Lettings Agencies: Larger agencies might be interested in acquiring smaller ones to expand their portfolio, enter a new geographical market, or eliminate competition. Belvoir Group’s Acquisitions team have purchased over 100 letting agencies for this purpose
Estate Agents without a Lettings Division: Estate agents (those who deal primarily in property sales) might be interested in diversifying their revenue stream by adding a lettings division. Buying an established lettings business can be a quicker and more efficient way to do this than starting from scratch. This is a focus behind Belvoir Group’s Acquisitions programme.
Property Investors: Those who already own multiple properties might see value in managing their properties through their own lettings agency. Acquiring an established agency can also provide them with industry expertise and additional income streams.
Franchise Owners: Some individuals or companies may be looking to buy a lettings business to integrate it into a larger franchised brand. As a franchise group, this applies to Belvoir.
Entrepreneurs & Businesspeople: Some buyers might be attracted to the recurring revenue model of a lettings business. Those with business experience, even outside of property management, might see potential in acquiring and optimizing a lettings business.
Financial Firms: Investment companies or private equity firms might be interested if they see strong profitability, growth potential, or the possibility of consolidating multiple lettings businesses into a larger, more valuable entity.
Overseas Investors: International investors looking to enter the UK property market might see acquiring a lettings agency as a strategic move. This could give them local expertise and a platform to manage and possibly expand their property portfolio.
Management Buyout: Sometimes, senior employees or managers within the lettings business might be interested in buying out the current owner, especially if they have a vision for its future and believe they can grow or improve the business. Belvoir are able to help with management buyouts where the management would welcome joining the Belvoir Group.
When selling a lettings business, it’s crucial to identify and target potential buyers effectively. Depending on the size and profitability of your agency, certain types of buyers might be more relevant than others. A business broker or consultant with experience in the property sector can be invaluable in this process.
Do I need a solicitor to sell my lettings business?
While it is technically possible to sell a lettings business without a solicitor, it’s highly advisable to engage one due to the complexities and potential pitfalls of the sale process. Here are some reasons why having a solicitor is beneficial:
Drafting and Reviewing Agreements: A solicitor can help draft the heads of terms, sale agreement, and any associated documents. These are crucial to ensure the terms of the sale are clear, enforceable, and in your best interests.
Due Diligence: Buyers will undertake a due diligence process to review the business’s financial, operational, and legal standing. A solicitor can guide you through this, ensuring you provide all necessary information and addressing any concerns raised.
Protecting Interests: A solicitor will ensure that you are protected legally and financially in the sale. This includes setting out warranties and indemnities, ensuring you are not left with unforeseen liabilities after the sale.
Regulatory Compliance: Selling a lettings business may have specific regulatory implications, especially given the regulated nature of property management and lettings in the UK. A solicitor can help ensure you meet all necessary requirements.
Property and Lease Transfers: If the sale involves the transfer of property or business premises leases, this can be a complex process requiring specialist legal knowledge.
Employment Issues: If you have employees, there could be legal implications regarding their contracts and rights in the event of a business sale. Transfer of Undertakings (Protection of Employment) Regulations, commonly referred to as TUPE, might apply, and it governs the rights of employees when a business or service is transferred to a new owner.
Dispute Resolution: If disagreements or misunderstandings arise during the sale process, a solicitor can provide advice, mediation, and if necessary, represent your interests in any formal dispute resolution.
Expertise in Negotiation: Experienced solicitors can be crucial during the negotiation phase, ensuring you get the best possible deal while minimizing risks.
Peace of Mind: Selling a business is a significant undertaking, and having a solicitor can provide peace of mind that all legal aspects are handled correctly.
For these reasons, while it may be an added expense, the cost of a solicitor can be seen as an investment in ensuring a smooth, legally secure, and advantageous sale of your lettings business. If you decide to move forward with a solicitor, ensure they have experience in business transactions, specifically in the lettings or property sector.
How much does it cost to sell a lettings business?
The cost of selling a lettings business in the UK can vary widely based on the size and complexity of the business, the professionals you engage, and the specific circumstances of the sale. Here are some typical expenses you might incur:
Business Valuation: Before you sell, you might want to get a professional valuation of your business. Costs can range from a few hundred to several thousand pounds, depending on the valuer’s reputation and the depth of the assessment.
Business Broker’s Fee: If you engage a business broker to help market and negotiate the sale, they’ll typically charge a commission based on the sale price. This could be anywhere from 1% to 10%, with the average being around 5%.
Solicitor’s Fees: Legal fees can vary widely depending on the solicitor’s expertise, location, and the complexity of the transaction. Some may charge on an hourly basis (£150 to £500+ per hour), while others might charge a flat fee or a percentage of the sale price.
Accountant’s Fees: An accountant can help you prepare financial statements and navigate tax implications. Again, fees can be hourly or fixed, with costs ranging depending on complexity and the accountant’s reputation.
Marketing Costs: If you’re advertising the sale yourself, you’ll need to budget for listings on business sale platforms, newspapers, trade publications, etc.
Due Diligence Costs: You might incur some costs preparing for the buyer’s due diligence, such as getting financial audits, property valuations, or other professional assessments.
Property-Related Costs: If the sale includes a business premises, there might be costs related to transferring or ending leases, property surveys, or environmental assessments.
Settlement of Obligations: Before the sale, you may need to settle certain business obligations, debts, or contractual arrangements, which could incur costs.
Tax Implications: While this might not be an immediate out-of-pocket cost, it’s crucial to consider the tax implications of the sale, which might include capital gains tax or VAT. Planning with an accountant can help you anticipate and manage these.
Miscellaneous Costs: This can include everything from administrative expenses, like printing and postage, to potential travel or accommodation costs if you’re meeting with distant buyers.
Budget appropriately and be prepared for these costs in advance: it’ll prevent any surprises later on.
How much does it cost to sell a lettings business in the UK?
The cost of selling a lettings business in the UK can vary based on various factors such as the size and complexity of the business, the professionals you engage, and the specific circumstances of the sale. Here are some typical expenses you might incur:
1. Business Valuation: Before you sell, you might want to get a professional valuation of your business. Costs can range from a few hundred to several thousand pounds, depending on the valuer’s reputation and the depth of the assessment.
2. Business Broker’s Fee: If you engage a business broker to help market and negotiate the sale, they’ll typically charge a commission based on the sale price. This could be anywhere from 1% to 10%, with the average being around 5%.
3. Solicitor’s Fees: Legal fees can vary based on the solicitor’s expertise, location, and the complexity of the transaction. Some may charge on an hourly basis (£150 to £500+ per hour), while others might charge a flat fee or a percentage of the sale price.
4. Accountant’s Fees: An accountant can help you prepare financial statements and navigate tax implications. Their fees can be hourly or fixed, and they will vary depending on the complexity and the accountant’s reputation.
5. Marketing Costs: If you’re advertising the sale yourself, you’ll need to budget for listings on business sale platforms, newspapers, trade publications, etc.
6. Due Diligence Costs: You might incur some costs preparing for the buyer’s due diligence, such as getting financial audits, property valuations, or other professional assessments.
7. Property-Related Costs: If the sale includes business premises, there might be costs related to transferring or ending leases, property surveys, or environmental assessments.
8. Settlement of Obligations: Before the sale, you may need to settle certain business obligations, debts, or contractual arrangements, which could incur costs.
9. Tax Implications: While this might not be an immediate out-of-pocket cost, consider the tax implications of the sale, including capital gains tax. Planning with an accountant can help you anticipate and manage these.
10. Miscellaneous Costs: This can include administrative expenses, like printing and postage, to potential travel or accommodation costs if meeting with distant buyers.
In summary, the total cost of selling a lettings business will depend on a variety of factors. It’s crucial to budget appropriately and be prepared for these costs in advance. Engage professionals early on to get estimates, and this will aid in ensuring a smooth sale process.
How much tax do you pay when you sell a business in the UK?
When you sell a business, the profit or gain you make from the sale is typically subject to Capital Gains Tax (CGT). The amount you’ll need to pay depends on several factors:
1. Annual Exempt Amount: Everyone has an annual tax-free allowance for capital gains. As of my last update in September 2021, this allowance is £12,300 for individuals and £6,150 for trusts. Any gains up to this limit in a tax year are exempt from CGT.
2. Rate of Tax: The CGT rate depends on the type of asset and your taxable income:
– Basic Rate Taxpayers: If your total taxable income and gains, after deductions like personal allowance, are within the basic rate band, then you’ll pay:
- 10% on assets
- 18% on residential property
– Higher Rate Taxpayers: If your gains push you into the higher rate tax band or you are already a higher rate taxpayer:
- 20% on assets
- 28% on residential property
Note: The sale of your business will typically fall under the “assets” category, not “residential property,” unless the business sale involves residential property assets.
3. Business Asset Disposal Relief: Previously known as Entrepreneur’s Relief, if you qualify for Business Asset Disposal Relief, you pay a reduced CGT rate of 10% on qualifying business assets, up to a lifetime limit of £1 million in gains. This can result in significant tax savings.
4. Holdover Relief: This is a type of relief that allows you to delay paying CGT when you give away business assets or shares. Instead, the person you give them to pays the tax when they sell or give away the assets.
5. Rollover Relief: If you reinvest the proceeds from the sale of business assets into new business assets, you may be able to delay paying CGT until you dispose of the new assets.
6. Incorporation Relief: If you transfer your business to a company, you might not have to pay CGT immediately. Instead, the tax might be due when you dispose of the company’s shares.
7. Other Factors: There are other reliefs and factors that can affect the CGT you owe, such as the presence of losses that can be offset against gains.
Given the complexities associated with capital gains and the various reliefs available, it’s essential to consult with a tax advisor or accountant who is familiar with UK tax law. They can provide guidance tailored to your specific situation and ensure you minimize your tax liability legally and efficiently.
What is Entrepreneur’s Relief? Or what is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR) is the successor to the previously named Entrepreneur’s Relief in the UK. Introduced in the March 2020 Budget, BADR offers a reduced rate of Capital Gains Tax (CGT) for eligible individuals and some trustees disposing of their business. Here are the main features:
Reduced CGT Rate: The main benefit of BADR is a reduced CGT rate of 10% on qualifying business assets. This is lower than the standard higher rates of CGT that might otherwise apply.
Lifetime Limit: With the introduction of BADR, the lifetime limit on qualifying gains was significantly reduced from £10 million (under Entrepreneur’s Relief) to £1 million.
Eligibility Criteria. To qualify for BADR:
- The business must be a sole trader or partnership operation, or you must hold shares in a personal trading company
- If selling shares, you should have at least 5% of both the voting rights and the issued share capital
- You must have owned the business or assets for at least 24 months prior to the sale
- For shareholders, they must be an officer or employee of the company (or another company in the same group).
Types of Disposals. BADR can be claimed on:
- The disposal of the whole or part of a business
- The disposal of assets used in a business after it has ceased
- Shares in a personal trading company
Restrictions: The relief won’t apply if the disposal is to a connected person, except in cases where a business is in cessation.
Other Factors: It’s important to note that other specific conditions and exceptions might apply, especially when dealing with shares and securities.
BADR, like its predecessor Entrepreneur’s Relief, aims to encourage entrepreneurship and long-term business investment in the UK. If you’re considering selling a business or business assets, it’s always a good idea to consult with a tax professional or accountant to understand if you qualify for BADR and to ensure compliance with all requirements.
How Long Does it Take to Sell a Lettings Business?
The short answer is that it depends. If there is the will on behalf of the seller in order to get the business sold quickly and on behalf of the buyer to get the business held quickly then it can be done to any agreed time scale. In practice, however, buyers may well want to proceed with caution in order to ensure that they are not going to get any nasty surprises. The due diligence and legal process can take time in the same way that the process of buying and selling houses can take time because It involves a valuable asset and all parties will want to ensure that they get it right.
Businesses have been sold within hours and others have taken years. These are extremes, however. In order to make the process as swift and smooth as possible, the seller can ready their business for sale and be alert to any requests from interested parties.
Factors that influence the time it takes to sell a lettings business include:
Preparation for Sale: Before you even list your business for sale, you’ll spend time preparing. This includes gathering financial records, possibly obtaining a business valuation, and preparing a sales memorandum. This can take a few weeks to a couple of months.
Market Conditions: The state of the market plays a significant role. If it’s a seller’s market, with more buyers looking for businesses than there are businesses for sale, you may be able to sell faster. Conversely, in a buyer’s market, it may take longer. Generally speaking, there can be strong demand for lettings businesses even in a recession because a lettings income can provide an estate agent with a cushion when sales begin to dwindle. As with anything, however, the price of the lettings business will be a large determinant in how quickly the business sells.
Pricing: If your business is priced competitively and accurately reflects its value, it’s likely to attract more interest and sell faster than if it’s overpriced.
Business Attributes: A well-run lettings business with a strong customer base, good reputation, and solid financials is likely to attract buyers more quickly than one with challenges or uncertainties.
Marketing and Exposure: The more effectively you market your business, the faster you’ll attract potential buyers. This might involve listing it on business sale platforms, using a broker, or leveraging industry connections.
Due Diligence: Once a potential buyer is interested, they’ll conduct due diligence, examining your business’s financials, operations, contracts, and more. This process can take weeks or even months, depending on the depth of the examination and the efficiency of both parties.
Negotiations: After due diligence, the negotiation phase begins. This can be quick, taking just a few days, or drawn out over several months, depending on the complexities involved and the parties’ negotiation styles.
Legal Processes: Drawing up and finalizing the sales agreement and any associated documents can add additional time, especially if there are complicated terms or unique stipulations.
Financing: If the buyer needs to secure financing to purchase the business, this can add to the timeline. Waiting for bank approvals or other financial arrangements can prolong the sale.
Transition Period: Sometimes, the sale agreement includes a transition period where the seller stays on to train the new owner or ensure smooth operations. While this isn’t part of the sales process per se, it’s a period the seller commits to the business post-sale.
How Can I Sell My Lettings Business Quickly?
We would like to point out that we have an option if you are interested in selling your business quickly. Our acquisitions team is constantly looking for investment opportunities on behalf of our franchisees: we have purchased over 100 lettings businesses and are constantly in dialogue with business owners. Many of our franchisees have ambitions to grow and, with six estate agency brands nationwide, it is likely that we know someone who would be interested in purchasing your business. If this is the case, we may be able to get the process moving quickly as we already have ready buyers & have experience in getting the process done.
If this is of interest to you, please get in touch with regard to valuing your business. There is no obligation & any information will be kept confidential.
If you enjoyed reading this article, you may also like: How to Sell an Estate Agency Business in the UK and What are the pros and cons of investing in an estate agency franchise?
