Who should I sell my business to?
Your choices will depend on who is interested in buying our business, and how much they want to pay. Selling to a well-funded trade buyer is often the best choice, but it will be dependant on the unique circumstances. Your business might be especially valuable to a firm with weaknesses in the area your company specialises in.
What advisers should I hire?
A broker can help you prepare the business, identify possible purchasers, and market the business to them. It is usually worth using a broker or working with your accountant if they have knowledge in this area.
You will also need a corporate lawyer to plan and negotiate the sales agreement. Your lawyer may be included in preparatory work such as formalising contractual relationships with clients, suppliers, and important employees to prepare for the sale.
How much is my business worth?
There are many diverse ways to value a business, depending on earnings, cash flow, turnover, and asset value. A growing company in a sector with decent prospects is of a higher value to buyers than an established business in a declining industry.
What alternatives are there to cash payment?
Purchasers may want to delay part of the total sum. This involves some risk of the buyer becoming bankrupt during the interim period. However, accepting partial payment may raise the price buyers are prepared to offer and can be helpful for your tax planning. You should ensure you negotiate proper protection for any deferred amounts.
Buyers sometimes want to arrange an earn-out, where a portion of the price paid depends on the future achievement of the business. This again endangers you to risk if the company underperforms. But it may increase the amount the buyer is ready to offer.
How much does it cost to sell a company?
The main cost is the advisers’ fees. Lawyers generally charge an hourly rate. Brokers may work on a monthly retainer basis, along with a success fee.
Make sure you have written contracts with your advisers setting out the basis of their charges with estimates of costs. A ballpark figure you can expect fees to total is around 10% of the sale price.
How long does it take to sell a business?
The initial step to selling a business is to start preparing it for sale. The sooner you start, the easier it will be to have the company in the best possible state for selling.
Once you begin the sale process, your broker will identify and attract possible buyers. This could take a few weeks to several months.
Can I carry on managing the business as I choose until the completion?
Unless you have signed an agreement stating otherwise, yes.
But you should consider the implications of any decisions you take. For example, entering into a long-term commitment with a customer could make your business less appealing to a buyer who wants to pursue a different approach. Having said that, your business may be more attractive if you arrange such contracts.
What do I need to know about buyers?
Primarily, if they are financially qualified to buy. If any portion of the price could be deferred you will need to assess their creditworthiness.
Make sure that you understand their expectations of you: for example, are you required to stay involved with the business for a while after completion? Also, find out what warranties or indemnities they need.
Should I give my preferred purchaser a negotiating period?
This is usually a good idea. It enables you to concentrate on one buyer and implies he should proceed quickly during the period of negotiation exclusivity.
Before giving any buyer exclusivity, be sure you have covered all the essential points to determine they really are your preferred buyer. You would typically agree on heads of terms before supplying an exclusive negotiating period, and you may want to ask for a financial commitment before doing so.
What are heads of terms?
Heads of terms are an agreement that sets out the main points of the sale. When you consider the major negotiating points are agreed upon, it is a good idea to propose that your lawyer arranges heads of terms. Completion of the sale then depends on due diligence – checking critical fiscal and legal data, examining the legal possession of business assets, and the negotiation of the sale documentsn.
Heads of terms can incorporate legally binding terms. For example, you may consent to an exclusivity period, or you might want the buyer to pay your legal fees if they choose not to see the purchase through.
What is my role in the buyer’s due diligence?
You want to assure that the buyer’s due diligence (their checking key fiscal and legal information by examining your records and asking you questions) won’t present any surprises that could jeopardize the deal.
Before the start of due diligence, make sure the buyer knows critical legal and financial issues concerning the business. One possibility is to carry out your own due diligence in advance. This enables you to recognise, and where suitable deal with, problems that could turn up during the buyer’s due diligence.
Will I have any responsibilities after the sale?
If you continue to be associated with the company – either as an employee a director – you will retain the duties and responsibilities related to your role. You will also have possible obligations under the warranties and indemnities that you have offered.