As leaked last week, the fund will eventually grow to £1.5bn in size and will provide equity for companies needing to be recapitalised. In addition the banks will provide a network of business mentors which will offer free advice and an appeals process for companies which have been denied loans by the banks. It is expected that the fund will start making investments in early 2011.

The equity stakes will be for at least 10% of the investee company’s equity, the holding period is expected to average 5 years and the funding will be for up to £10m in size. This is a positive move by the banks and will help recapitalise many businesses as well increase those companies’ chances of getting a loan following the equity injection.

The big downside is that the fund is targeted at those companies with turnovers of between £10m to £100m – that leaves out a big chunk of hard-up UK companies. The Financial Times estimates that the fund might only help 150 companies!”

If this turns out to be true, this could be a welcome relief to thousands of small businesses which have suffered from a lack of available finance in the last couple of years. Details are expected to be given in mid October.

Unusually for banks, this fund is expected to provide equity to help recapitalise financially stretched businesses. This will be a welcome departure from the banking norm of only providing rolling overdrafts and/or senior loans to small businesses and will work in a similar way to 3i.

To sell your business quickly you need to consider the following:

1. Price of your business

If the price is right most businesses will sell relatively quickly and if it is a quick sale you are after, then your sales prices needs to be keen, which is like any asset you are trying to sell. Most importantly, be open to offers and be prepare to be flexible on payments terms, including the acceptance of vendor finance.

2. Market niche

If your business happens to be in a particularly popular niche, then there are going to be more buyers around that want your business. This will not only help to get your business sold extremely fast, but also the price you ask can be higher, as a higher demand normally equates to a higher price.

3. Having your business in order

This is a larger topic and one that is open for bigger discussion, however, the important message for this article is that you make sure that you have got all your paperwork, to include business plans and forecasts, in order. You want to make sure that when you get a potential buyer for your business, you are able to present to them your most up to date accounts to include management accounts. This will demonstrate to a buyer that you run your business in an efficient and effective way – to do a ‘kicking of the tyres’ on your business, in preparation for the due diligence stage of the sales process, is always well worth it to flush out any skeletons, as it were. If there are any, it is always better to have them out in the open beforehand.

4. Economic climate

The economic climate will undoubtedly have an effect on how speedily you sell your business, both in terms of business buyers wanting to ‘take the risk’ of buying a business in the first place, and also, the ‘associated risk’ with your niche of business in the economic climate there is at the time you decide to sell. The economic climate, as we have all seen of late, can also have a dramatic affect upon the ease of borrowing money to buy a business. This in turn could possibly lead to fewer buyers and therefore make it more difficult to sell fast, which again points to your being flexible on price.

5. Appoint a good business broker

As there are always more businesses on the market for sale than there are buyers, you must make sure that your business stands out as being a good proposition and worth the investment. Which is where a good business broker comes into the equation. All business brokers will help you value your business, but a good business broker will also help you to ‘Prepare your business for sale’ before it is advertised, thereby speeding up the sales process.

Always a good way to view your business is in the eyes of a buyer, rather than as the seller – think about what you would like to see if you were Buying Your Business.

The Enterprise Finance Guarantee (EFG) enables small businesses with a workable business plan, but lacking sufficient financial security, to borrow money from approved lenders.

With the EFG you can:

– Borrow flexible lump sums from £1,000 to £1,000,000.
– Spread the repayments over 1 to 10 years.
– Have either fixed or variable rates of interest.
– Have capital repayment holidays, up to a maximum of two years.
– Where the loan is greater than £25,000 you can have flexible draw down arrangements.

Most of the high street banks such as Lloyds TSB, Barclays, NatWest, RBS and HSBC offer the EFG to small businesses with a turnover of up to £25 million. The security given by the EFG is for up to 75% of the loan and will only be given if the bank would have lent the money, but for the fact that the proposition lacked security.

There are some complications that come into play when a person is using the Enterprise Finance Guarantee to buy a business, not least the rule that the scheme cannot be used to purchase shares in another business. So some careful planning needs to be done both in terms of the business buy out structure and in terms of tax planning for the seller and the buyer.

The EFG scheme can however be used to buy the assets of another business, which in itself brings advantages to the buyer, in that this lessens the legal costs, as there is no longer any need for excessive warranties and indemnities, but also where there is purchase goodwill this has favourable tax advantages for the buyer.

Using this purchase method the seller can still get relief under the Capital Gains Tax legislation for the sale of his business and still potentially get Entrepreneurs Relief of up to £5 Million. We recommend that you seek sound tax and financial advice before you proceed with the sale. The positive outcome of this is that for entrepreneurs looking to sell a company, the EFG paves the way for a successful business sale.

Vendor Finance is where the vendor or the business owner effectively lends the buyer of the business a part of the purchase price in order to make the sale of their business more likely.

Vendor financing is also known as deferred payment or can take the form of an ‘Earn-Out’ and is an excellent way to help ‘oil the wheels’ for a business sale and is better explained by way of an example:

With a business valued at say £400,000, where the buyer does not have £400,000 in the bank, the business could be finances, as follows:

– Buyer’s own capital – £100,000

– Bank loan – £150,000

– Vendor finance – £150,000

The total making £400,000 – the bank needs to be happy with the above deal when they lend their £150,000 and the bank loan, in the first place, is subject to the deal being one that the bank is happy to lend on.

The advantage of offering vendor finance when you put your business up for sale is that it increases the chances of you selling a business, as it opens the market up to more potential buyers, buyers who might not ordinarily have the money to buy your business.

The terms that are set for vendor financing are up to the buyer and seller to agree and include the length of time over which it is paid, whether or not interest is charged on the loan and whether the financing is secured or not.

BowFin are supporters of Vendor Finance and actively encourage sellers of businesses to accept it as part of the agreed sales price.

For smaller companies there is a slight drop to 20%. Clearly helpful but don’t forget that this is accompanied by a reduction in capital allowances. Capital allowances are crucial for UK manufacturing and crucial for new investment. Again, government has misunderstood UK manufacturing.

Meanwhile, we shouldn’t also lose sight of the fact that UK corporation tax is still at the higher end of the scale versus many other countries in the EU and OECD.

Angel investors are increasingly the source of funding for start-ups and they tend to be people who can contribute a lot to the companies they invest in – they are often former industrialists, accountants, bankers, lawyers or marketing experts. The companies in which they invest get capital but also vitally, expertise. The angel gets an investment with significant potential and the fun/sense of achievement of helping a company grow.

But this shouldn’t distract angel’s from the cold reality that angel investing is risky. A report produced in 2009 by NESTA and the British Business Angels Association found that nearly 60 per cent of deals made a loss for the investor. Buyer beware!

But the increase in entrepreneurs relief is to be welcomed. Entrepreneurs’ relief rate of 10 per cent has been extended to a lifetime limit of £5m. Most entrepreneurs successfully sell only one or two businesses in their careers. This new limit should more than cover most entrepreneurs’ winnings. Unless, of course, you are Richard Branson!

Bowfin’s senior partners have over 40 years combined experience in advising, valuing and selling businesses, an experience which is delivered to you in a unique, personal and professional service.

To sell a company it first needs to have a valuation and BowFin are committed to achieving maximum value for business owners. When BowFin sell a business the process of researching potential buyers, preparing the sales particulars, dealing with non-disclosure agreements, arranging the meetings with the buyers (and attending them) to negotiation as well as co-ordinating the process, you will receive an unrivalled hands-on service whether you have small business, medium business or a large public company.

Throughout, confidentiality will be paramount. To sell a business it is important to make it as attractive as possible to would-be buyers and we can undertake a review of your business to make sure you maximise value. For further information see Business Review.