There are many factors to consider when selling a business – it’s a decision that shouldn’t be taken lightly. For some, it can be very emotional and stressful, particularly if it’s a business that you have poured your life and soul into. Commercial law expert at Banner Jones Solicitors, Rachael Flintoft, details five important things to consider when selling.
What are your objectives?
One of the first things any adviser will ask is why you want to sell, as this can impact the deal structure proposed. A trade sale to another business, typically in the same sector, is the most common exit route, although alternatives can include a management buy-out, passing the business to family, or floating your business. Some of the more common objectives include retiring/ill health, securing the future of the business and the employees or minimising your personal tax liabilities.
When is the best time to sell?
The biggest mistake business owners often make is selling too early, rather than taking the time to groom the business ready for sale. You need to show prospective buyers that your business is under control with accurate management information. You should also consider improving planning, performance and profitability across the board, making sure you have suitable contracts for employees and suppliers, resolving any outstanding disputes and tightening finances.
Finding a buyer
Once you feel ready, your adviser will draft a ‘sales memorandum’ which effectively highlights the key features of the business, including basic performance indicators such as turnover and profit. There are specialist commercial sales agencies that can help to market your business to prospective buyers.
Weigh up your offers
There are different ways to fund the purchase and take-over of a business and this may affect how you draw up a shortlist. Offers may include cash payments, guaranteed deferred cash payments, share swaps or payments that can often be linked to future business performance in the form of ‘earn-outs’. It’s best to discuss any offers with your advisers to ensure you pick the right option for you. Some other factors that may affect your decision might be if the buyers have any plans for the business, such as:
- Will they sell parts off?
- Will it become part of a wider group?
- Will there be any redundancies?
- Will you be able to retain some management control if you want to?
Be transparent when finalising a deal
Before committing, the purchaser will want to carry out detailed due diligence checks into every aspect of your business. You should be as transparent with them as possible and you’ll often be required to give warranties that the information you have provided is true and be asked for indemnities to protect the purchaser from any risks.
