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Selling Your Business

Every business is unique so the issues that arise and need to be considered when planning a sale can be complex, so expert advice from solicitors experienced in disposals is important.

As advisers, we understand the personal pressures on a business owner and work hard with you, and those around you, to understand and crystallise the reasons behind the decision to sell (or buy).  This guide aims to summarise the key issues that need to be considered when planning to sell your business.

This guide covers the areas you need to think about when first considering selling your business (or a share of it):

Is selling your business the right choice?

Different circumstances may be involved including:

  • retirement of the business owner;
  • a desire to realise some of the growth of the business through your hard work and strategic input; or
  • to raise capital to fund the next stage of growth and capital investment.

You will also need to consider whether the business owner(s) will sever all connections with the company, post sale, or continue to work with the business and the Purchaser following the sale?

Answering these questions will help identify the type of purchaser or exit (trade competitor, investor, venture capital or floatation) and timescales for the process.

Planning to sell your business

All business owners should avoid, wherever possible, being in a situation where they are forced to sell.  Purchasers will pay a premium for removing a particular competitor or for a well run, profitable business with growth potential.  Bringing in purchasers to sort out problems or, for example, to replace old machinery will depress the value a potential purchaser is willing to pay for your business.

A well run business will be fit for purpose, in good shape, delivering and demonstrating best performance and generating good revenues and profits on an appropriate cost base.  It should not just be in the last few years of ownership that a business owner is aiming to achieve these goals.

Steps, timing and appointing advisors

Step 1 – who owns what?

  • If you are not the sole owner of the business, you need to discuss your aims and aspirations with the other shareholders and stakeholders in the business and formalise your arrangements.  Very often, even if a number of business owners/partners have been in business for many years, the prospect of a sale can bring out otherwise suppressed tensions where different ages, goals and family requirements lead to different expectations of what will be achieved on a sale.  Formalising agreements early will help smooth the sale or investment process.
  • The owner(s) ought to undertake a personal financial planning exercise to ensure their affairs are arranged as efficiently as possible from a tax and wealth planning point of view.
  • The owners also need to identify early on any internal negotiations that may need to take place.  Are there any senior employees that need to be involved and, where appropriate, placed on longer, fixed term contracts to ensure they stay with the business and add value to it for the benefit of the Purchaser?

Step 2 – getting your business fit for sale

Business planning and “getting fit for sale” can include addressing:

  • Maintaining and updating equipment;
  • Ensuring all commercial contracts are in order (full copies and in writing);
  • Any outstanding litigation issues or threatened disputes;
  • Any other serious issues (for example with IT or computer systems, debtors or pensions);
  • Making sure the business can demonstrate an engaged and motivated workforce;
  • Any property issues are identified and settled (ownership of any property is clear and recorded in writing);
  • The website and the terms and conditions are fit for purpose;
  • The banking arrangements of the company are in order;
  • Obtaining timely and experienced professional advice (including tax planning).

Step 3 – timing

We advise all business owners to plan their exit early.  Anywhere between two and five years ahead of any anticipated exit is considered the optimum period in order to maximise the benefits from the planning and grooming process.

Step 4 – appointing your advisers

Accountants and lawyers that specialise in buying and selling a business, such as the team at MLP Law, will play a key role in preparing a business, the company and its owners for a sale.  They will also help to guide the Sellers through the sale process itself.  It is crucial to spend time identifying and engaging appropriate and experienced advisers.  Good advisers will explain the legal process and demystify the terms used in the process, for example:

Due Diligence” the Buyers enquiries and investigations into the target business to identify any issues and to justify the price it is willing to pay for it;

Warranties” statements of fact requested by the Buyer from the Sellers concerning most aspects of the business against which there may be a claim against the Seller in the event that any of the statements turn out to be incorrect and;

Indemnities” an agreement from the Seller that they will be responsible for the costs and losses relating to a particular matter – indemnities are usually specific to the business involved and arise from matters identified during the due diligence process.

Identifying potential purchasers

There are many different ways of finding a Buyer and the more you can appeal to a potential purchaser, the more likely you are to achieve the best price for your business.  The most common purchasers for small and medium sized and owner managed businesses are:

  • sale to a trade competitor
  • a financial investor or
  • a management buyout

* A management buyout is where the upcoming senior management of the business will structure a deal in order to be able to purchase the business from the outgoing Sellers (whether in whole or in part).

The sale process itself

The Sale Process itself can be a time consuming, lengthy and costly process which, in addition to the above steps, can be broken down as follows:

Due Diligence:

The commercial, financial and legal investigations made by the Purchaser to satisfy itself that the business being bought is robust and justifies the value being placed on it.  Usually, the legal due diligence is the last and most frustrating part!  However, good preparation by a Seller means that it need not be frustrating at all.  Being well prepared results in the Seller being aware of any issues, the documentation being in order and able to be readily supplied to the Purchaser.

Contract Negotiation:

The preparation, negotiation and finalisation of the main documents required for the transaction.

Completion Itself:

This is when all the main documents and all supporting documents to put the transaction into effect are finalised and produced for signature.  The price to be paid is passed over to the Seller and legal ownership and responsibility for the business passes to the Purchaser.

Timescale to sell a business

Whilst each transaction is unique, typically the length of time to go through the sale process identified in number 8 is usually somewhere between three and six months.  It can happen quicker than this, given the right circumstances and a willingness on behalf of all involved to complete the transaction quickly and, it has been known to take much longer!

Where to invest money after selling a business

What you do with the proceeds of the sale is a crucial part of the process.  It will determine whether the decision to sell and the timing of the sale was the right decision in the first place.  Good quality financial planning and investment advice is hugely important.  We can recommend and introduce you to one of our recommended advisers in a timely fashion.

For more information and for assistance on how we can use our skill and experience to groom and protect your business to get it fit for purpose and to maximise the sale value for you, please contact Stephen Attree, Partner and Head of our Corporate and Commercial Department at MLP Law for an initial, no obligation consultation.

For more information and for assistance on how we can use our skill and experience to groom and protect your business to get it fit for purpose and to maximise the sale value for you, please contact Stephen Attree, Partner and Head of our Corporate and Commercial Department at MLP Law for an initial, no obligation consultation.

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