Selling a business, whether it is a small family business, franchise, or a well-known multinational, can be a daunting prospect. Preparation, careful consideration of key issues and engagement with the right advisors at an early stage are likely to speed up the process and make it smoother for all involved.
Here are some key considerations to keep in mind during the planning and early stages of a business sale:
1. It’s all in the timing
When is the ideal time to sell?
While there may not be an easy answer to this big picture question, you should think about things like busy or quiet periods for your business and lead-in times. You might also have upcoming bookings, events, or projects to consider.
Business sales often take several weeks, if not months, to complete and there may be things such as licence transfers and third-party consents, with associated timeframes, to factor in.
2. Get the structure right
Have you taken financial advice on the structure of the deal?
It often pays to engage a suitably qualified professional, such as an accountant or a specialist tax advisor, to assist with structuring the deal.
It may be advantageous in certain situations to sell the shares in a company owning the business (a “corporate sale”) as opposed to the business, along with the property/lease, equipment and other business assets (an “asset sale”). If the business premises are owned, you may consider selling the business and leasing the premises to the buyer, while retaining the property itself and the benefit of rental income.
3. Crunch the numbers
What are the tax and financial implications of the sale?
You may also wish to seek advice on matters such as the valuation of the business including any goodwill, VAT (many business sales are transfers of a going concern, which don’t attract VAT and this can be beneficial for buyers), capital gains tax, and capital allowances.
If the business has debt, does a sale (and likely sale price) make sense financially? It may be worth seeking an early redemption figure from any lender with security over the business assets/premises to avoid a surprise down the line.
4. The secret agents
How will you market the business for sale?
You may consider selling to a competitor or there might be another obvious buyer, whether it be a friend, family member or an existing employee.
There are many agents who can assist with and advise on varying types and sizes of business. The right agent can use their knowledge and experience of the market and your business type to guide you through the process and help you achieve the best deal possible.
Once a buyer has been identified, agents can assist in preparing and negotiating heads of terms. Heads of terms often cover much more than the agreed price, and detailed, well-negotiated heads of terms are likely to make the legal process quicker and more streamlined.
5. Do your homework
Do you have a comprehensive and up to date due diligence package ready for the chosen buyer?
This is likely to include:
- Financial information, accounts and records.
- Lease documents or title deeds.
- Information regarding employees that will remain with the business post sale, including contracts of employment.
- Business contracts that are capable of being transferred to the buyer, as required.
- Statutory compliance paperwork - asbestos report, electrical/gas compliance and PAT testing certificates, energy performance certificate, environmental health certificate, fire risk assessment, alterations paperwork, health and safety file and similar.
- Information regarding domain names/IP addresses and any intellectual property rights.
- Technical information pertaining to the business.
- Copies of any licences required to run the business.
6. Take stock
Does the business have stock or other moveable items/equipment that will be included in the sale?
If these items are to be included, how will they be valued/paid for? Is any equipment held on hire purchase agreement? You may be asked to provide an inventory of moveable items and equipment to be included in the sale contract.
7. Top Secret
Is confidentiality a key issue?
You may not wish details of the sale to be leaked too soon. We can assist with properly drafted pre-contractual documents, including non-disclosure and exclusivity agreements. We would also recommend a well drafted confidentiality clause within the sale contract itself to allow the parties a degree of control over the timing and content of any press release or similar and to restrict the disclosure of confidential information. This may be especially relevant prior to employees being made aware of the sale.
8. Looking to the future
What are your plans for the future?
Do you plan to set up another business in the same sector? The buyer may look to impose restrictions on the seller setting up a competing business or trading under a similar business name within a certain timeframe following completion of the sale.
If you are simply taking the cash, what do you intend to do with it, and have you taken appropriate financial and personal advice, including making sure your will is up to date?
And finally
Organised and well-advised business owners are well placed to achieve the best result possible when it comes to selling their business.
Our team has experience across a wide range of fields, allowing us to support every aspect of the business sale process. We also have strong connections with accountants, agents, and others who can help facilitate the process, and we would be happy to make any relevant introductions.
If you are thinking about selling your business, please get in touch for an initial chat.
