You’ve put effort into making your business into the success it is so far, so on exit what are the things you need to do to maximise the value for you?
To get started there are a number of things to consider in the lead up to selling:
a Putting the right professional team together
b Getting your shop window ready and understanding the value of your business from a buyer’s perspective
c Be prepared for the sales process and negotiations
d What are you going to do after completion?
Putting the right professional team together
You will need to assemble a dedicated team that will work on the sale. This can include a management team, legal advisers, corporate finance and tax advisers. The teams you put together will play an integral role in the sales process. The teams must co-operate, communicate and work together on a range of matters.
Get your shop window ready and understand the value of your business from a buyer’s perspective
Before engaging with prospective buyers, you should consider undertaking an internal due diligence process, which involves reviewing your business from the perspective of a potential buyer and identifying strengths and weaknesses in order to position them correctly.
Addressing and resolving any issues in advance will help maximise the value of the business. It can also help save you money in the sales process going forwards.
You will also need to consider who you are aiming to sell to and what they will want to see. Remember the price of your business will ultimately be decided by the buyer and the value they think it is worth.
Be prepared for the sales process and negotiations
The speed of the negotiations and agreeing the legal documentation varies from deal to deal, but can be greatly sped up by preparing your business for sale.
In terms of the legal documentation and process, the following key items will form part of your sale:
heads of terms;
the sale and purchase agreement;
and, the disclosure process (where you have the opportunity to protect yourself against the weaknesses in your business identified in stage b).
A crucial part to the process is requiring the buyer to sign a non-disclosure agreement prior to any sensitive information being provided to ensure your commercial information remains confidential. Next is commonplace for parties to enter into a heads of terms setting out the key commercial points of the deal. This document can often help focus the deal as a skeleton of agreed terms, but can also hinder if the parties get too excited in the finer legal points at this stage.
The key legal document is the sale and purchase agreement. The form this document takes will depend on the method by which the business is sold. The principal methods of selling your business is via an asset sale or a share sale. While both structures are ultimately capable of achieving the same objective there are often fundamental differences in the legal effect and the tax treatment of the two methods.
The tax treatment of the two methods is often a driving force in determining what route you take. Often the most important thing for a seller in your position is ensuring the sale qualifies for entrepreneurs’ relief. Your advisers will need to structure the deal to qualify for that relief as this will mean your proceeds of sale will be taxed at 10% rather than the full applicable capital gains tax rates.
Regardless of what form the sale and purchase agreement takes, this document is fundamental and will contain many of the following contractual terms, for example, the purchase price and payment process, the assets/shares being transferred, warranties and indemnities which protect the buyer and clauses limiting your liability to the buyer which in turn protect you. Your advisers will advise you on the form and content of these terms and negotiations should centre around agreeing a document which is as protective of you as a seller as possible.
What are you going to do after completion?
Congratulations, you have sold your business, but what next? You will need to consider whether you will continue in the business post completion and if any part of the purchase price is conditional upon future performance? Additionally, now you have a lot (hopefully) of cash, have you spoken to your financial adviser as to what to do with it and updated your will?
This article has looked only briefly at the considerations for selling. For additional specialist advice, contact our experienced corporate solicitors.
Join us for our Preparing a Business for Sale event on May 8, at our Camberley office.