Many business owners think they will easily be able to sell their business to a third party when the time comes. In fact it can be daunting and a lot more challenging than might at first be imagined. Planning in advance is vital to make the process of selling your business a bit less scary.
Here are our top 10 tips…
When do you want to sell? Are you all agreed on the price that you want to receive? If you are not the only shareholder in your company then you all need to be clear on the answers to these questions. Many business owners will assume that all shareholders are on the same page when this can often not be the case. People have different priorities and those priorities may well change as time goes by so make sure that the conversations are not only had but remain ongoing.
Where you have other shareholders in the mix who may not agree with you on the timing or price of a sale of your company than you’ll need to be aware of what is provided in your Articles of Association and/or Shareholders’ Agreement. In the case of a deadlock between shareholders you may need to invoke a drag-along provision (if there is one) which would typically allow the majority shareholder to compel a sale of all of the shares in issue.
Communication is key and conversations around succession planning and any future sale should be held as early as possible with other shareholders to avoid problems later down the line.
Typically a business owner will be able to claim Entrepreneur’s Relief on a sale of their shares so any Capital Gains tax payable will be at a rate of only 10%. But it’s no good checking this at the last minute! Tax planning often means that shares are split among family members and if they are not employed (or a Director or Company Secretary) then Entrepreneur’s Relief may well not be available on their proportion of the shares.
If you are selling the shares in your company the buyer may not always want all of the assets it holds or you might want to keep something outside of the sale. A common example of this is premises which may be owned by the company itself which you want to move out or the buyer may not need. There are legal and tax issues to consider and the earlier you think these through the better.
Whilst you may have been running your business for many years, and have great relationships with your customers and suppliers, a buyer will want to be sure that key contracts are in place so they know where they stand from a legal perspective. This includes things such as any lease to your premises: if a buyer wants the business to stay where it is then they will want to know details of the rent and any review provisions, what duration of the term is left and if they have the right to renew it.
6. Statutory Registers
If you are selling the shares of your company then a buyer will want to check the Statutory Registers. In particular the Register of Members contains the information on the ownership of the company and often this is not kept up to date. The Registers should be checked to ensure that there are no issues and that all the necessary information is included so that the buyer does not become nervous.
7. Due Diligence
A buyer of your business will want to undertake a due diligence exercise before a sale proceeds. Contracts, as mentioned above, will form part of this along with things relating to employees, premises intellectual property and data protection to name a few. If any issues are revealed at this stage a buyer may want to re-negotiate their offer or re-consider the purchase altogether.
Responding to a buyer’s due diligence request can be hugely time consuming so you should plan this in advance by preparing a due diligence “pack” with help from your advisers. This will ensure that you can continue to focus on the day to day running of your business without becoming too distracted at this stage. It could also give you an opportunity to manage or rectify any issues that come to light and make sure that everything is in order before you present it to the buyer.
8. Your team
Whilst you may be excited at the thought of cashing in after many years of hard work your key team members may not feel quite the same. A sale to a third party will no doubt bring some uncertainty – a new boss, new working practices, or perhaps a move to new premises. Key employees may well be vital to ensuring the sale gets across the line and the buyer will want to be sure that they are locked in to help with the transition period, particularly if you will not be involved in this yourself and if they hold key client relationships. An employee share scheme can be a great way to do this and motivate them to help you sell your business. As with the other tips this should be considered in advance to ensure that a tax efficient scheme can be put in place.
9. Professional Advice
Taking professional advice in the very early stages can be invaluable when it comes to selling your business. Your advisers can help you deal with things such as due diligence and Statutory Registers (as mentioned above) as well as ensuring that the process runs as smoothly as possible. You could well miss a trick by introducing advisers at a later stage (for example after Heads of Agreement are drawn up and key points have already been negotiated without the benefit of legal advice).
10. The Legal Bit
Your legal advisers can help you be clear of the legal process to be followed from the offset and can draw up a confidentiality undertaking to be signed by a potential buyer before any information is revealed. They can also assist you with due diligence, Heads of Agreement, and of course the (extensive) paperwork that will need to be prepared and negotiated as part of the sale process. Having a trusted adviser by your side throughout will help to take some of the stress away.
Sign up to our newsletter to stay up to date with all of our news, blogs and events