Guide to selling your business

Selling a business is a huge decision that generally follows the culmination of years of hard work to build up a brand and services offered.

Whilst it is not something that many business owners do more than once, it is important to get all aspects of selling the business right first time.

Owners looking to sell their business need legal support and consultation throughout this important process in order to secure the best possible commercial terms.

The guidelines below outline the advice you will need when preparing to sell your business, the sales process and negotiation tips.

The decision to sell

Look at the reasons why you want to sell your business. Four of the most common ones are to make as much money as possible, to protect your financial future, retirement or ill health. However, it is important to think about your additional objectives that surround your decision to sell. You need to consider:

  • What time frame do you want for selling the business?
  • What’s your target price or fixed reserve price?
  • Do you want to receive immediate payment in cash or just a certain amount in cash?
  • Do you want to continue to be involved in the business?
  • Do you want to secure the jobs of your employees?
  • Can you minimise personal tax liabilities?

If you are selling your business out of choice rather than necessity then another point to consider is the timing of selling up. Consider the current economic situation, and also remember selling too early could mean that you are not taking advantage of your business’s full potential. It can be worth taking a little more time to build stability and profitability to make it more attractive to potential buyers. However, leaving it too late can mean your business is on the decline. Ideally, you want to sell your business when it is at its absolute peak in order to attract the very best offer.

Getting the right advice

Once you have considered the factors above and have decided that you want to continue with the process, it is important to get the right advice to support you. The complexity of selling a business is down to a number of ‘moving parts’ such as valuing the business, timing a sale, finding the right buyer, negotiating the price and terms, completing due diligence and concluding the sale, all of which requires extensive legal and other negotiations.

It is strongly advised that you enlist the help of a law firm specialising in assisting individuals and companies with sales to ensure you get the best deal and protect yourself fully. Legal expertise is what guides you to make the best decisions.

Presenting the business in the right light

It is important to show your business in the best light in order to get the best possible price from a buyer, so demonstrating a good financial record is imperative. Some ways to do this are as follows:

  • Focus on short term results.
  • Try to show financial stability throughout the year - look at any future major purchases and either try to bring them forward or delay them.
  • Sell any equipment or property that is under used or not needed.
  • Improve stock management and credit control to tighten up your working capital position.
  • Be realistic about depreciation figures; make provisions for bad debt and old stock.

Look at the business’ current status and work towards making it less risky. Do you have any informal contracts or deals with suppliers and customers? If yes, try to turn them into formal contracts. Try not to focus all your attention on your larger customers, as reducing this dependency can open further business development. There are many ways to make a business shine for prospective buyers.

Creating the Sales Memorandum

The sales memorandum is the initial document used for marketing your business to interested parties. This will make the business attractive and provide a source of hard information for prospective buyers. This is usually presented in a one-page summary of the business and includes key information about what it does, staffing, premises, turnover and profit. The purpose of the sales memorandum is to generate interest in the business; however, it generally does not include information that will identify your business.

Marketing your business to potential buyers

Your next step is to take a look at who would be interested in buying your business and make a list of who to target. Interested parties could include:

  • Competitors, suppliers or customers
  • New companies within your sector, including foreign companies
  • Your own management – a buy out or buy in
  • Financial investment companies

Your legal adviser will advise drawing up a confidentiality agreement for interested parties to sign before further discussions commence.

For serious prospects

The most important feature as far as your potential buyer is concerned will be the financial performance of the company. Following the circulation of the sales memorandum you will be able to identify the serious buyers. After the initial meetings and the declared interest of potential buyers to move forward, the next step generally is to provide them with the finances. These include the company’s:

  • Turnover
  • Gross profit
  • Adjusted net earnings

It is important to bear in mind that you are also selling the future earnings of the business, so in order to prove the ongoing strength of the business then the following may also need to be provided:

  • Forecast revenue for the following year
  • Revenue split by client and product/service
  • Revenue for the last three months to date in comparison with the same period the previous year

Remember that the key to a successful business sale is to present your business as an investment and to show how the business can provide the prospect with a return on their investment.

Prospective buyers will also want to be assured that you are not selling your business for hidden reasons such as liabilities, large indemnity claims or serious risks to the business. Another important reassurance that will need to be supplied is that you will not be starting up a similar business and ultimately taking your clients with you. Clear transparency of your reasoning to sell the business will be expected.

Weighing up the purchasing offers for your business

Can your preferred buyer pay for taking over the business? However good the offer may sound, unless they can prove that they are able to finance the purchase then its worthless. Another consideration is that if shareholders or a board is involved then the right approvals need to be gained.

Choosing a buyer for your business

If there is more than one buyer for your business then you are in a position where you are able to negotiate to get the best deal for you.

A good working relationship with your selected prospect is always important to ensure the completion of sale. Once you have selected your choice buyer then legal representation is necessary to handle areas such as exclusivity periods where you are not allowed to negotiate with anyone else.

To ensure the sale of your business then legal corporate and commercial representation is strongly advised throughout the whole process. This safeguards your company and the sale both legally and professionally.