Selling/transferring a sole trader business

michaels

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3
Hi,
I'm new on this forum, I hope I'm asking in the right place. A few years ago I set up an online business, selling software products I developed, as a secondary activity to earn something on the side (I'm a PAYE employee too). Since I like to keep things simple, I just registered as a sole trader, got a trading name, an accountant and everything went smoothly.

Fast forward to today, the business is doing better than I thought. It generates a decent income (which increases all the time, and would definitely get a boost with some good marketing), compared to the time required to manage it (a couple of hours a week). Most of the time is spent answering pre-sale and simple first level support questions, and there are occasional custom projects, which generate extra revenue on top of the sales. Running costs are also very low: apart from hosting and accountant, there are no other expenses.

Due to personal circumstances, I was now thinking of selling the business, and I was wondering if that could be doable, and how, since there is no legal entity (e.g. Ltd) behind it. The first thing that came to my mind was to get a valuation, my main concern is that being a sole trader could make things more difficult.

Some answers to questions I got asked elsewhere
  • The business is not strictly dependent on me, personally. Anyone with good technical skills could take over the products and improve them, and/or provide support to the customers.
  • I don't have a personal relationship with customers (i.e. customers won't leave the business if I'm no longer there). They expect a quality service, but they will be happy to get it from a "successor".

Any opinion and suggestion is always welcome. Thanks in advance for all of them.
 
It is certainly doable (I have done so). The sole trader thing won't be a hindrance if the business has some value to someone else. Valuation will depend on (amongst other things) the size of and how repeatable/reliable the revenue stream(s) are, what potential liabilities might go along with taking it on and, of course, if there are any/many interested buyers out there. I imagine your accountant could give you some idea of valuation range. I used an agent to go out and actively seek buyers - the viability of that will depend on potential size of the sale.
 
Thanks for your feedback, much appreciated. The revenue stream is quite stable and it can easily be increased, as I mentioned, with some marketing. Many of the products for sale are in high demand and there are no competitors. Well, there is one, but his products don't work very well and, more often than not, his customers come to me. Another good aspect is that there are no liabilities. The only requirement is due diligence to maintain the products and providing some customer support (which are both part of the software business). Also, since the business is entirely online, there is no material to transfer, one can run it from anywhere. This could make both it easier and harder to find potential buyers, as I could look worldwide for them.

I guess I will have a chat with my accountant, to see what he thinks about it. By the way, you mentioned that you used an agent to seek buyers. How are they called, and where should I look for one?

Thanks again for your time and answers. :)
 
Hi Michael

Would the business be of interest to an existing company? Someone in a similar field who could sell the product more easily or who could sell their products to your customer list?

In such cases, acquirers often overpay for a business.

Brendan
 
Hi Michael
Would the business be of interest to an existing company? Someone in a similar field who could sell the product more easily or who could sell their products to your customer list?

I really think so. There are existing companies who sell products for the same platforms, and the one I sell would be a good addition to their portfolio. Besides, they would have the opportunity to extend their existing products to work with mine, making them even more unique. Any companies which already has support an development personnel would incur in almost zero extra costs. Also, the products I sell could easily be priced higher, and they include a limited amount of updates (i.e. with a good sales team, they will become a recurring revenue).

In such cases, acquirers often overpay for a business.

That would be great, however I would first have to define the business value to see if an offer would be good or bad. The figures I have are X income and Y expenses per month, which I then can compared to the amount of time it takes to manage it, but I don't know how many of these elements can be taken into account to make a proper valuation.

To make an example, from my personal perspective, a business that earns a net profit of 4K Euro/month and needs 40 hours a month to manage is more valuable than one that nets 10K and requires full time commitment.
 
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