You may choose to sell your business for a number of reasons, such as retirement or wanting to move on to new business ventures. When it comes to selling your business you’ll need to create goals and expectations for what you want to get out of the sale as well as consider any legal implications that may arise. That’s why we’ve created a step-by-step guide to help you sell your company.
Asset sale vs share sale
Before you start following the steps below, it’s important to know that when you’re selling your business you have two options:
- An assets sale - This involves selling all or some of the business assets of the target business or company. The buyer can cherry pick the assets and leave behind any liabilities in the sale and purchase. The employees will transfer automatically to the buyer under the TUPE regulations.
- A shares sale - This involves the shares in your company being sold and thereby acquiring the company and in turn the assets, liabilities and the employees.
Step 1. Create your goals and expectations
No matter your reason for selling your business, it’s important to set goals and expectations you want to achieve from the sale. Your goals could include:
- Stating your desired outcome - This could include selling some of your shares and remaining involved with the company’s operation or selling all of your shares and ending all operational involvement, maybe after a handover period.
- Deciding the timeline you want to sell the business in - For example, within a year.
- Choose your after-sale objectives - This could include remaining involved in the business for around 3-12 months or even longer in some cases after completion of the sale.
You should be prepared for the sale process to take up to six to nine months. This makes it important that you set your goals and expectations early on.
Step 2. Ensure the business is ready for the sale
The process of selling a business can be complicated, making it important that you get the entire business ready for the sale. You can prepare your business by:
- Speaking to legal, tax and financial advisors regarding possible deal structures.
- Ensuring your business is attractive to the buyers by creating a strong team and corporate structure.
- Keeping the premises in great condition by fixing and/or replacing any broken equipment.
- Ensuring any disputes with suppliers, employees and customers are settled.
- Making sure all contracts and leases are in order.
- Making sure all accounts and recent financial information are up to date.
- Starting to pass management responsibilities onto another individual or team members.
Selling a company as a going concern
When selling shares in a company you can sell it as a going concern, warts n’ all. This means, subject to any change of control provisions in any of your contracts, that the buyer can operate the business as usual in its current financial situation while using existing resources like equipment and the premises.
The buyer will automatically be responsible for all liabilities when they’re due and these are often taken into account in the price negotiations. It will also have the benefit of the debtor book and other assets of the company.
Step 3. Consider the time you want to sell the business
You may want to sell your business as soon as possible, but it’s important to properly plan the sale. This will ensure the business transaction is as smooth as possible. You may want to sell your business when:
- Profits are high, as it makes the company more appealing.
- When the economic market is expanding, there tends to be more appetite for deals.
It’s recommended to start preparing for your sale one to two years before it takes place. This allows you, amongst other things, to get your accounts sorted, build a more cohesive team and grow your customer base.
Step 4. Business Valuation
A business valuation may help you understand the value of the company, based on its physical assets, historic and projected profits, brand reputation and the industry, together with a multiple of sustainable profit (EBITDA). It’s a good idea to get an expert to help you get a realistic valuation.
Remember your valuation won’t necessarily be the price your business sells for - it’s worth what someone will pay for it!!
Step 5. Put together an Information Memorandum (IM)
An Information Memorandum is often prepared by Corporate Finance Advisors. It can help you clearly highlight what your business does, helping you attract the best buyers. Your IM should consist of:
- The work you do.
- The location of your business and its market.
- Your USPs.
- The reasons you’re selling the company.
- Your turnover, sustainable profit and potential growth.
Step 6. Get ready for due diligence
During the sale of a business, the buyer usually will want to complete due diligence to ensure they’re getting the best deal. As a result, it’s a good idea to get support from a legal professional and your accountant to help you properly manage this. If there are any holes found during due diligence it can put the buyer off completing the deal or lead to a price reduction.
To prepare for due diligence you should:
- Pay off any overdue liabilities or be transparent about them to the buyer.
- Gather at least three years' worth of financial information and tax returns.
- Ensure the statutory registers and Companies House records are accurate.
- Have documentation to hand on your property and assets.
- Provide clear details on your shareholders.
- Ensure your intellectual property is protected. This includes your trademarks, copyright, trading name(s) and domain name.
- Make sure all employee, supplier and customer contracts are up-to-date.
- Make sure your business insurance is in place.
Step 7. Find a buyer
There are a range of ways you can find a buyer for your business. It is always useful to have a short list in mind of who might be interested, have a think about your supply chain and competitors. You could also always talk to your senior management team to see if they would be interested.
Step 8. Corporate Finance (CF) Advisers
Another way you can find a buyer is to use a CF Adviser. They can give you advice on selling a business, finding the right buyer as well as getting the best deal. While you need to pay for their services, they can help you achieve a higher price or a better deal, helping you offset the cost. Other benefits of using a CF Adviser include:
- They save you time by helping you find buyers and negotiate the right deal. This is especially useful for busy business owners, this allows you to concentrate on continuing to run a successful business.
- They give you better access to a wider market, giving you a better chance to find the right buyer.
- As CF Advisers usually work on commission, they are incentivised to get you the highest price possible.
- They are experienced negotiators.
Step 9. Be prepared to negotiate
Commonly, the buyer will want to negotiate and reduce the purchase price. But don’t forget that you can negotiate as well. There should always be room in your valuation for the price to go down, but you should keep a minimum sale price in mind and, if profits or prospects are improving, during the sale process, ask for more!!
It’s also a great idea to research your buyer to see how your business will fit in with their values, USPs and goals. If they already own other businesses you should look into how your company can meet some of their needs. This will help you better persuade them into purchasing the business. You’ll also want to check that the buyer also has the finances in place to make the purchase.
It’s also important to get your discussions and what has been agreed confirmed in writing. For example, if you have had a conversation over the phone you should send a follow-up email to confirm what you have agreed.
Step 10. Complete the sale
Your legal advisor or solicitor will help you with this step. You will need to review the agreement and any associated documentation. Some of the main documents you’ll need to look at are:
- The sale and purchase agreement that cover the terms of the sale.
- The Disclosure Letter in relation to the warranties you are required to give.
- Your new employment or consultancy agreement.
- Any new lease agreements.
Step 11. Ensure you complete post sale tasks
Once the legal agreements have been signed, you should inform employees and customers of what’s happening with the business. Telling them after the sale will help you avoid any interference during the process of selling the business.
We take the time to get to know you and your business to ensure you get the best deal. We’ll also help you with the drafting and negotiation of your documents to help you achieve a cost-effective and timely result.
Get in touch with our Corporate team today to see how we can help!
