Selling a business marks a substantial change in your career and lifestyle. Due to the weight of the decision, you will want to do it in the best possible conditions – with minimal effort required during the sale process, to the right buyer and for the deserved value.

It’s crucial to understand what’s involved in a business sale before committing. This will allow you to determine the timeframes and what you may have to do to complete the sale.

This guide explains the process of selling a business, part by part, so you know what to expect.

1. Pre-sale
2. Marketing your business
3. Structure the sale
4. Establish initial terms and confidentiality agreements
5. Due diligence
6. Ironing out issues
7. Signing documents
8. Completion

Pre-sale

You should be prepared for the sale of your business up to two years in advance. You need to make various considerations during this time to maximise sale value and stand a better chance of attracting prospective buyers.

You need to ensure your share structure is clear and that you can progress the sale in line with your shareholder agreements.

Other considerations to make include:

• Is it clear how your assets are held?
• Have you got any unregistered Intellect Property?
• Is there any outstanding debt you need to resolve before the sale?
• Have you had an independent valuation of the business?
• Do you know what kind of buyer you hope to sell to?

Essentially, you need to do everything possible to remove any barriers that might harm a sale and make your company as appealing as possible.

Marketing your business

You will then list your business for sale until you find an interested buyer. Things to consider here are:

• Who to approach (who is your target buyer?)
• Use a corporate finance house or business broker to assist with the sale
• Put together an Information Memorandum and teaser document
• Determining the routes to market depending on your ideal buyer
• Send out a teaser to prospective buyers

It can take some time to find a suitable buyer so remember to be patient!

Structure the sale

Once you find an interested buyer, you need to agree on how the deal will occur.

There are two primary forms of a business sale. The first is an asset sale, in which the assets owned by the business are sold, plus any liabilities the buyer agrees to take on. The second is a shares sale, which covers all assets, liabilities, and obligations of the sold company. You need to decide which you are going to pursue.

You also need to agree whether there will be one payment at completion or if it will be paid in stages. There may also be an earn-out arrangement where the total or a proportion of the price of the business is only paid if the expected value is delivered once the new buyers take control.

Once you’ve decided on the structure, it will be much easier to move forward and formulate contracts.

Establish initial terms and confidentiality agreements

Once the sale process begins, you will need to set out the initial terms of the sale. These are often called heads of terms. It essentially sets out the agreement in principle between both parties and should be drafted by a lawyer.

The initial terms will only come after a certain amount of negotiating, so you arrive at a point where all parties are satisfied. However, some criteria must be met for the agreement to come to reality, which should be set out in advance.

You may also create an exclusivity agreement at this point, which protects the seller entering into conversation with another party.

Finally, you’ll want to include a confidentiality clause. This prevents details of the sale from being made public before you are ready – after you’ve informed staff, customers and suppliers. It minimises the risk of anxiety or disruption that could threaten the viability of the sale.

Due diligence

Both you and the seller will have undertaken some initial research by this point of the process. However, there will now be much more detailed due diligence to investigate the commercial, legal and financial aspects of the deal.

The buying party or their representatives will typically do this. They will be seeking to determine if they will get the proposed value post-purchase. They will check there are no significant financial or legal issues associated with your company, such as ongoing HR problems, court cases or owed debt.

Anything uncovered during the due diligence process could affect the price offered and the negotiation of terms. It’s crucial to be upfront and honest before this point so that the checks by the buyer do not unearth anything not already known, as this could derail a sale.

There will also be due diligence of the existing agreements and contracts to ensure they are legally binding and cover all bases.

Ironing out issues

You need to consider several factors as part of the sale transaction. For example, you will want to seek protection for your employees and pensions, which must be agreed upon in advance and formalised.

There may also be issues around Intellectual Property, assets etc., that you need to build into the contract, so it is clear what each party is responsible for and what will be received.

Depending on your industry and structure, there may also be specific approvals from other stakeholders you need to get. These include those from regulatory bodies and shareholders. Such consents need to be considered and sought early, as they could impact the sale’s success if you can’t secure them.

Signing documents

Once all the various factors associated with the sale have been covered, including ironing out any issues, completing due diligence and negotiating an agreement that satisfies all parties, it is time to sign the final sales and purchase agreement and associated documents.

These documents will have been drafted under the watchful eye of a lawyer, ensuring everything is covered, and there are no discrepancies that could affect the validity of the deal. This will cover indemnities and warranties that you need to give the buyer of your business.

Completion

Completion occurs once the final contract is signed and monies exchanged. The business is officially transferred to the new owners.

There are still some things to do at this point, such as making necessary filings and tax returns, communicating with customers and stakeholders, resigning as a director, changing the bank mandates and generally managing the transition.

If you have an earn-out clause in your contract, you may also need to wait until the promised value has been realised.

Conclusion

The selling process can be long, with many complications and factors to consider. However, if you find a suitable buyer and agree to a fair deal, it is more than worthwhile.

By understanding the stages involved with your business sale, you will ensure you are prepared in advance and undertake the necessary action at the appropriate time.

If you are considering selling your business, get in touch with us for practical advice, including maximising value ahead of the sale and targeting the right buyer.