Clarifying the reasons for selling your business, and identifying the main objectives, will determine the contents of your checklist for sale. The approach of retirement or ongoing ill-health are common reasons for selling a business, but you may simply want to release the capital if your market is buoyant.
As far as the objectives for sale are concerned, are you going to pass the business on to a family member, or is finding the right trade buyer a priority? Maybe your principle objective is the value achieved on sale, or the timescale involved.
Others might include:
Minimising your tax bill
Remaining involved in the business after the sale has gone through
Ensuring that employees’ jobs are safe
It’s a good idea to also consider various alternative exit strategies prior to putting your business up for sale, should these goals not be met.
What professional assistance will you need?
A range of professional advisors should be involved in preparing your business for sale, to minimise your tax bill for example, and ensure that a correct valuation is made. Valuation is a complex process involving detailed auditing, and it’s vital to put this in the hands of a professional.
Presenting it well on paper will attract the most suitable buyers, but this means getting a few things in order well before it goes on the market:
Making sure that all supplier contracts are in order
Tightening up on credit control procedures and the purchase of stock
Ensuring a healthy flow of cash through the business
Keeping your accounts up-to-date
Obtaining an accurate valuation for the business is one of the most important considerations, and this can only be achieved by using a professional valuer. Your accountant will be able to help you prepare the books, however, and present the business in the best light financially.
Marketing the business
Confidentiality will be an issue when marketing the business as competitors are likely to show an interest, so it’s important not to disclose your business name when marketing. Furthermore, it should only be revealed once a serious interested party has been identified, and signed a confidentiality agreement drawn up by your solicitor.
Having said that, there are no guarantees that news of the sale will not be released as employees and customers become aware of what is happening. The best advice is to use a business broker to market and help you sell your business. They can act as an independent third party in negotiations, and maintain a degree of separation between yourself and any intended purchasers.
You will need to prepare a Sales Memorandum for interested parties, stating the proposed timetable for sale, providing the basic facts about the business, and inviting any opening offers. No significant detail is provided in the Sales Memorandum, however, as a more comprehensive appraisal of the business can be shown to serious purchasers later in the process.
A shortlist of interested buyers will naturally develop once marketing is underway, and you will need to identify the most likely purchaser based on various factors including how they will pay, and how long the sale will take.
Buyer due diligence
Every aspect of the business is likely to be scrutinised by the buyer and their representatives during the due diligence process.
A Heads of Terms document is a written agreement signed by both parties that outlines the main points of the deal in progress, but certain parts of this can be legally binding. It’s a good idea to keep at least one other appropriate buyer on the shortlist in reserve, in case the deal does not go through.
The purchaser will need written confirmation that there are no hidden problems or third party issues that they should be aware of, and this is usually provided by way of a warranty.
Tax issues on a share or asset sale
Are you going to sell the entire company, or just the underlying business assets? The possibility of taking on hidden liabilities generally means that purchasers prefer an asset sale.
The downside for you as the business owner, is having to extract the value from the sale by way of dividends or liquidation. If the shares of the company are purchased, you receive the money directly, which is clearly the beneficial route as far as you are concerned.
To summarise the aspects to consider when selling your business, here is a checklist for preparing, marketing and selling:
Clarify your reasons for selling, and your main objectives
Do you have any alternative exit strategies if Plan A fails?
Enlist the help of professional advisors, including a valuer and business broker
Prepare a Sales Memorandum for all interested parties
Follow up with Heads of Terms for the best buyer
Consider the tax issues for each type of sale
An experienced business broker can reduce some of the stress of selling your business, and offer valuable assistance when negotiating with potential purchasers.
Written by Jeff Barber, Partner at BTG Corporate Finance. Jeff has 30 years' experience in corporate finance, during which time he has advised on a broad range of industry sectors and transactions ranging from start ups to £100m+ MBOs.