How to sell your business
1. Fail to prepare - prepare to fail!
It may be necessary to undertake a pre-sale business review well in advance of your proposed sale date with the help of an experienced corporate finance adviser and implement necessary changes. You must be prepared to invest time and money at the outset which will help you to obtain the best price for your business. You will only obtain the best price for your business if you can present to the market a consistently profitable business with a good customer base and a competent management team who will be able to take the business forward after your exit.
2. Choose the right team
When you and your corporate finance adviser are ready to put your business on the market, you will need to appoint the right team of advisers (such as specialist lawyers and accountants/tax advisers). This is essential as you are putting perhaps your most valuable asset in their hands. Take your time and interview a range of candidates if necessary. You will also need a trusted internal team who will need to collate information for inclusion in a sales memorandum and/or in response to a buyer’s due diligence enquiries
3. Go to market
Your corporate finance adviser will understand the market for your business and help you look for a serious buyer with proof of funds. This process could well include drawing up a shortlist of serious buyers from which you can choose a preferred buyer whom you will likely have to offer an exclusive negotiating period (known as a “lock-out” period).
4. Strike a deal
The agreed deal terms will be set out in a signed Heads of Terms (also known as Heads of Agreement or Memorandum of Understanding) and this document is the “road map” for the deal that all parties will follow. It is not legally binding (except for a lock-out period and confidentiality obligations on the buyer) as it will be superseded by the legally binding sale and purchase agreement (“SPA”).
5. Due diligence
A buyer will seek to fully investigate the affairs of the business to assess the business risk before committing to buying your business. This is called the due diligence process. Information will usually be collated in a sales memorandum for the buyer to review and there will likely be ongoing enquiries as the sale process develops. Ensure that the buyer signs a confidentiality agreement before disclosing any commercially sensitive information
The legal process starts in earnest with the drafting of the SPA by the buyer’s lawyer and its submission to your lawyer. Detailed review, comment and negotiation follow to finalise the document and you should be patient at this stage as the SPA can be a long and complex document.
Once the SPA is close to being finalised, all parties will fix a date for legal completion of the sale. Physical completion meetings are not necessary – documents can be signed in advance and the simultaneous transfer of the business and payment of the sale price can take place remotely supervised by the lawyers.
This article first appeared in the Hemel Gazette on Wednesday 27th April 2016.
For further advice on selling your business, please contact Simon Porter.