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How do I... Sell a Business?

View profile for Matthew Fretten
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The decision to sell your business should not, of course, be taken lightly. Your business may be the result of years of hard work and selling it can be an emotional and time consuming task. You will want to ensure that the sale process goes as smoothly as possible and that you receive what you feel your business is worth. The following guide may assist you with this.

Planning the Sale

You should, if possible, think about the sale some time before you officially start the sale process and you should always consider all of the options available to you. Do you definitely want to sell your business or can you just employ a manager or promote an employee already showing strong potential to take on some of your responsibilities and free up some more of your time? Is there already a management team in place who knows the company and would consider a management buy out, or are there family members keen to take over?

If, having considered the options available, the best move still seems to be to sell, or when you are selling the business out of necessity, you should consider what you want to achieve. The most important considerations will be the price that you hope to receive, whether you need payment up front or could consider deferred or partially deferred payments, and whether or not you wish to be involved in the business (albeit not as the owner) going forward.

Once you have set your objectives timing is imperative. You should consider particularly any potential or proposed tax changes, the economic climate, and the state of your books. If you know that in six months time the books are certain to look much healthier as a result of a big customer you have taken on, or for another reason, then you should wait until these positive changes are showing before marketing the business.

Surround yourself with experienced people

It’s a running theme but getting the right advice when you are selling a business is just as important as getting the right advice when you are buying a business. With a sale more advisers may be required. You will need an accountant and corporate solicitor but you may also chose to use a business broker or corporate finance adviser to assist you with selling the business and structuring the transaction.

You should be clear with your requirements of each adviser and how any overlapping responsibilities should be divided between them, you should also try to agree their fees, or the basis upon which these will be calculated, at the outset.

Preparing the business for sale

In order to achieve the best price it is important to show the business in the best possible light. In order to do this you should dispose or sell business equipment and property that is not being used, adopt better stock management and tighter credit control, try to show a stable financial position throughout the year, and improve efficiency wherever possible. Management information systems should be working properly and the assets that you are showing any potential purchaser should be in good working order and not surplus to requirements. Where possible you should ensure that customers and employees are signed up to appropriate and legally binding contracts, and that any property used but not owned by the business is properly occupied under a lease or tenancy agreement. Your advisers should be able to assist you with preparing the business for sale.

Prepare a sales memorandum

This is not always required depending on how potential purchasers are approached but if it is it should, in the same way as a property sales memorandum, make the business sound attractive and be a source of accurate written information for prospective purchasers.

Once you have interest

Before parting with detailed information, e.g. customer lists, it is very important to ask potential buyers to sign up to some form of confidentiality agreement. You may also wish to anonymise some of the key employee/customer information that is initially provided. In return for confidentiality, and more importantly incurring the costs involved in undertaking due diligence, a potential purchaser may wish you to offer them some kind of period of exclusivity. Whilst this is not an unreasonable request you will want to resist this whilst you still have several people interested (if you are lucky enough to be in this position) and until you are as confident as you can be that a potential buyer is serious and that you want to proceed with them.

You should also take steps to ensure that the sale causes as little disruption to the business and key employees who you do not want to ‘jump ship’ as a result of concerns about the security of their own positions.

Deciding between offers

If you have more than one offer these may take different structures and have different pros and cons attaching to them. Whilst it can be a sensitive subject, the first important matter is to ensure that the proposed purchaser has or is in a position to borrow the necessary funds otherwise the whole process will be a waste of time. If the proposed purchaser is offering deferred payment, you will want such payments guaranteed. If the deferred payments are dependent on the future performance of the business you will want to keep some control, or at least ensure that the purchaser is prevented from taking actions with the intention or result of adversely affecting the performance of the business whilst the deferred payments are still due. Your corporate solicitor will advise you on this and should ensure that the necessary protections are included in the sale agreement.

If you do you want to continue to be part of the business going forward, this will probably influence your decision. Not only does a potential purchaser have to be in agreement with your continued involvement and prepared to offer you what you believe to be appropriate terms, but they will also have to be someone with whom you can establish a successful working relationship.

If you do not want to work with the new owner but intend to work in the same or a similar business area at some point in the future you will need to carefully consider the restrictive covenants that the purchasers will no doubt be keen for you to enter into.

Enter into a Heads of Terms.

Once you have accepted what you feel is the best offer you should enter in

a Heads of Terms/Heads of Agreement which will set out the main terms of your proposed sale. 

Once you have entered into Heads of terms the Purchaser is likely to undertake further and full due diligence. This will involve both your and the purchaser’s advisers. Whilst a purchaser may try to renegotiate the price following the due diligence process you should, unless they have good reason to do so, resist this as hard as possible. Whilst the purchaser will know that you will be keen to do the deal at that stage, they are likely to be as keen as you as they will have incurred not only the professional fees that you have incurred but most probably bank charges associated with their borrowing too.

Complete the ‘legals’

There will be a number of legal documents that will need to be prepared, negotiated, and agreed before you can formally complete the sale.  Your advisers will guide you on the documentation but you should make sure that your instructions to them are clear to ensure that what you sign up to accurately reflects what you think you have agreed.

The purchaser will expect you to enter into a number of warranties (statements of truth about the business) and possibly indemnities to cover specific issues that they know about. You should read these carefully and where possible avoid or disclose against them.

Ideally a completion meeting will take place at which the various parties can meet, agree any outstanding issues, sign the paperwork and formally complete the acquisition, however, if this is not possible, completion can take place remotely.

Call us if you are thinking of selling your business, we can help you with any questions you have.

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