In the first of our series of articles for small art businesses Becky Shaw highlights some tips to consider when selling your business…

Thinking of selling your gallery or other small business?

If you own a gallery or other small business, there may come a time when you want to sell it.  It could be the biggest transaction of your life, so it is important to do it right.  Here are some things to think about.

Identify your X-factors

Certain things make your gallery attractive to buyers.  You might have an enviable list of clients, exclusive agreements with desirable artists, or a beautiful space in a sought-after location.  These are some of the X-factors that can generate future profit for a buyer.  If you can identify your X-factors, you will attract buyers.

How much?

Be realistic about the value of your gallery and business.  Like selling a house, it is easy to get a high valuation but difficult to get someone to buy at that price. Bridging the price expectations of the buyer and seller isn’t always easy and ultimately comes down to your X-factors.

It’s all about you

What is your motivation for selling the gallery?  Are you looking for a clean break?  Do you expect to stay with the gallery after you’ve sold it? A buyer might only be interested in your gallery if you remain at the heart of it, pushing and growing turnover and profit.  Think about your relationship to the gallery and what this might mean to a buyer.

It’s not all about you

If the gallery still depends heavily on your dynamism, skills and reputation, then it might not be ready for sale.  Founders should gradually hand over the reins to an able management team and allow the business to operate more independently.

What’s their motivation?

Motivating key employees, such as gallery managers or assistants, can help to create a management team that can take the business forward towards a successful sale.  Think about how you can incentivise your key employees. A tax efficient share option scheme is one way to align your employees’ interests with your own.

Axe the tax

There are ways of minimising your tax when you sell a business. The earlier you take advice, the more options you will have.  Don’t leave your tax planning to the last minute and take some advice at least a year before a likely sale.

No FD, no comment

A buyer will want to see robust and regular financial information which demonstrates sound financial management.  You will need to show actual sales against budget, that you manage your cash carefully, and that you have limited your exposure to bad debts.  Sound financial management and internal reporting will give a buyer fewer reasons to back away from the deal or chip away at the price.  If financial management isn’t your strong point, find someone who can help.

Take some advice

Selling your business could be life changing so get some advice.  Not all business sales will need a mergers and acquisitions adviser but they can help to find potential buyers, maximise the price and manage the sale.  Their fees will be largely contingent on the sale completing and they can act as an invaluable conduit between buyer and seller.  Ask your existing advisers for some names.  Test their understanding of your business and its sector and ask them to map out the marketing process.  Crucially, have an open and honest discussion with them about valuation.

Doing the housekeeping
It can take up to three years to prepare your gallery business for sale.  Success depends on methodical planning – and ticking these boxes:
Is your internal financial information reliable and regular?	√
Is your financial management good enough?	√
Have you got a good management team?	√
Are you managing your risks properly?	√
Are all your contracts in writing?	√
Are there any disputes on the horizon?	√
Does the gallery business rely on key assets which are owned by you?	√
Have you protected your intellectual property?	√
Have you done your tax planning?	√
Are your key employees locked-in and incentivised?	√

This article was written by Becky Shaw, a Litigation solicitor at Boodle Hatfield. It is subject to our disclaimer and should not be regarded as constituting or being a substitute for, and should not be relied upon as, legal advice.