Selling your business is a big decision - and an opportunity to reap the rewards of your hard work and long term investment. So what things should you be aware of, and prepare for, ahead of the sale? Here are five tips to make the process as smooth as possible.
1. Be organised
The process of a sale from beginning to end can often take several weeks or months and is likely to be time consuming for you. It is important to have people and procedures in place to ensure that management of the business is unaffected. Ensure that you appoint trusted and experienced professional advisers to represent you at an early stage. Both these steps will give a buyer confidence.
2. Structuring the deal
If your business is held through a company you should consider whether to sell the shares in the company (which will generally take all the assets and liabilities with it) or have the company sell only specific assets. There can be advantages and disadvantages of both options so it is important to take advice early. There will also be tax implications to consider - a good tax lawyer is likely to be a crucial adviser in the structuring and timing of your sale.
3. Do your own due diligence first
Most buyers will want to carry out an in-depth review of the business to understand its strengths and weaknesses and to confirm their valuation (a process called due diligence). This will involve reviewing key customer and supplier contracts, property leases/titles, employee information, accounts, permits and business policies and procedures.
Before you give potential buyers access to these documents ensure you have reviewed them with your advisers to identify and deal with any potential issues that could otherwise give a buyer cause for concern - and reduce the price they are willing to pay.
4. Keep it confidential
It is important that any potential buyer signs a confidentiality agreement (sometimes referred to as a non-disclosure agreement) to ensure that any information given during due diligence is suitably protected. This is particularly the case when your business involves the use of valuable "trade secrets". It is normally wise to keep your decision to sell from employees until a sale is certain, as their attitude to the business may be affected if they are concerned about job security.
5. Agree a Letter of Intent
Once you have an interested buyer you should agree a Letter of Intent (often referred to as a heads of terms). This document sets out the main commercial terms of the deal before the detailed legal agreements are negotiated and should avoid arguments at a point when significant costs may have been incurred by the parties. It is well worth having your legal adviser check over the buyer's draft to make sure it reflects market norms.
This article first appeared in the P&J Leader. By Derek Stroud, corporate partner at Brodies LLP.
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