Things To Consider When Selling Your Business
Selling a business is often the culmination of years of hard work. Most entrepreneurs will only go through this process once and it is important to get it right first time. Here we address the typical questions that owners might ask, when they are thinking about selling up.
What price can I expect? There are different ways of valuing a business. A valuation might be based on underlying profitability or net asset value. The simple fact though, is that a business is only worth what someone will pay for it. The price is a matter for negotiation and the figure you command may well depend on the level of interest in your business. An experienced adviser can make a huge difference here – they can help present your financials in the best light, gauge interest from potential buyers and help you navigate through the negotiations.
When should I sell? The timing will depend on your reasons for selling. You may want to retire, embark on another project or simply cash in on your investment. Whatever motivates you, start planning early. Having a well-considered exit strategy can help you successfully market your business and achieve a better price. Can you demonstrate that the business is on the up? Are profits growing and are there opportunities for expansion? Will the business be able to survive without you? Do you have mangers who will preserve relationships with clients, customers and suppliers long after you have gone? If the business relies on you, a buyer may be less willing to pay all the cash up front. You might be asked to sign up to an “earn-out” requiring you to stay working in the business to achieve certain profit forecasts that will then dictate the price you ultimately receive.
What preparations do I need to make? Be prepared to get your house in order. A buyer will want to carry out due diligence on your business. They want to understand what they are buying and what risks and liabilities they may be taking on. To secure a good price, you will need to provide healthy financials, detailed information on your staff, properties and assets and evidence of compliance with key legislation. Your advisers can help you prepare this information and present it in the best light. Starting this process early can also help identify issues that need rectifying. You may choose to disclose major issues to the buyer upfront to avoid price chipping later on.
What will the legal process entail? Once you have found a buyer, you will enter into heads of terms. These provide a “route map” for the transaction by setting out the key commercial terms. The buyer will then commence their due diligence. You should make sure the buyer has signed a confidentiality agreement before they begin this process so that they cannot misuse the information you provide. You will then enter into a detailed sale agreement negotiated by your lawyer. The buyer will ask for a series of protections in the sale agreement and your lawyers will be instrumental in helping you ensure that your liability is kept to a minimum and that you cannot be pursued for any claims after the sale.