You only get to sell your business once and getting the right price at the right time can be a significant challenge if you are not well prepared. Not only that, but the process itself can be a major distraction which could have a detrimental impact on your business.
Staying one step ahead and making your business as attractive as possible to potential acquirers can make the process a lot less daunting. Here we highlight some of our top tips …
- Your objectives
Take the time to consider what is important to you. Are you selling your business because you are nearing retirement and want to have more time to spend with loved ones or because you want to do something else? If so, the terms of any deal will be very important (i.e. a 3 year earn-out with significant involvement for you post the deal may not be attractive).
If “day one” cash isn’t your main driver there may be other potential options that are more appropriate, for example selling to your team over a period of time. Equally it may be that a potential buyer would want only your customer book but your legacy and the continuation of the business are, for you, key to the terms of any deal.
By thinking this through before you enter into negotiations with any buyer you can avoid wasting time and costs on a deal that you aren’t comfortable with.
- Timing is everything
Be aware of what is happening in your industry. The economy in your sector can affect the appetite of potential acquirers. If your buyer needs external finance to make the acquisition external factors such as interest rates and their ability to borrow will be key.
Your business may be cyclical in nature and you will want to show any buyer strong financial records and projections. Presenting this information at the right time in the cycle will make the business more attractive to a potential buyer.
- Due diligence
Before a final offer is put on the table your potential buyer will want to undertake a potentially significant due diligence exercise to review things such as key contracts (customer, supplier, leases, hire purchase etc), intellectual property and employees (the list goes on!).
The buyer will typically provide you with a list of things they will want to review and responding to this can be a time consuming task. Anticipating this beforehand can give you a significant advantage, not only in saving time, but also in addressing any issues that might have been long filed away in your bottom drawer. Such issues could result in the price being renegotiated so finding and dealing with them appropriately ahead of time will ensure everything is in order before you present the information to the buyer.
- Your team
Selling your business may be exciting (for you at least) but have you considered your team? The uncertainty that a sale can bring could make your key team members anxious particularly if the buyer is a larger company based far away from your current premises for example. The fear of redundancies, a new boss, and new working practices to name a few could result in key members of your team leaving before the sale completes. If your buyer is keen that your management team stay involved (perhaps they have the key client relationships) this could scupper any sale.
By thinking through your sale early on you’ll give yourself the opportunity to consider things such as an employee share scheme. This could be a great way to motivate you team to help you sell the business, as of course they will then “cash in” as you do.
Whilst you may expect to pay only 10% Capital Gains Tax with Entrepreneurs’ Relief on the proceeds of sale it is worth checking this well in advance. You may have transferred shares to family members as part of historic tax planning arrangements which could mean that Entrepreneurs’ Relief is not available on some of the shares.
If your business owns the property it trades from you’ll need to assess whether or not you think the buyer would want or need this. There can be significant legal and tax hurdles to consider and the later this is left to be dealt with the bigger the tax consequences might be.
- Statutory Registers
The information around the ownership of your company will be contained in the Register of Members. Many businesses do not keep these up to date so they should be checked ahead of a sale to make sure they contain the correct information. As an example there could be historic minority shareholders still showing or transfers not detailed.
Whilst the Register of Members is the most important register your Statutory Registers should also contain information about the Directors and Persons of Significant Control. If the registers are not up to date they will need to be reconstituted and complications may arise if historic records are not available.
One of the first questions a buyer will ask is to see these and if they are not up to date it could make a buyer nervous.
If you aren’t the sole shareholder you’ll need to have conversations around succession planning as early as possible to make sure you are all on the same page. You may have completed different ideas on timing or price and often this is something that isn’t discussed until absolutely necessary (for example in the case of a dispute or falling out). Priorities are likely to be different so having clear expectations that you are all agreed upon will be key.
If you have minority shareholders in your company, for example employee shareholders, then this isn’t as much of an issue if you have the appropriate constitution in place. The sale of your company could hang on the provisions of your Articles of Association and/or Shareholders’ Agreement. You may need to trigger a “drag-along” provision (if indeed you have one!) which would allow you as majority shareholder to compel a sale of 100% of the shares in issue to the buyer. Your constitution should be checked in advance so you are aware of your legal position should a deadlock arise.
- Professional Advice
You may well need the advice of a corporate finance adviser or merger broker. They can help you prepare for and present your business for sale.
Taking the advice of a solicitor and accountant at an early stage will also be vital when it comes to preparing your business for sale. They can assist you with preparing financial information, due diligence, and reviewing the statutory registers.
Many business owners will have never been involved in the sale of a business before so having experienced advisers to support and guide you can help the process run as smoothly as possible.
- Heads of Agreement and NDAs
Often business owners take the first few steps without advice and end up in tricky negotiations down the line which can ultimately delay the process or result in a buyer walking away.
The process of selling your business is not to be underestimated. Things such as Heads of Agreement can help you agree headline terms in advance of the potentially extensive legal documentation being produced (saving both time and money). Confidentiality undertakings (or NDAs) are often overlooked but can be very important to have in place before you reveal potentially confidential information as part of the due diligence process. Having your lawyers on board early on can ensure you don’t leave your business exposed (and allowing you to continue to focus on your business).
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