Whether it’s an immediate objective or something you’re considering for the future, selling a business is a complex venture with many-a-pitfall to catch out the unfamiliar.

Considering most business owners will only go through the process once in their career, entrepreneurs uncertain of the best approach in selling their company certainly aren’t alone.  No matter your motivation for doing so, the prospect of parting with the business you have built can feel overwhelming. If you’re worried about getting it right, enlisting the support of a corporate lawyer should be high on your To Do list.

Below, we’ve put together a short guide on the steps you should take in selling your business to the right buyer, at the right time for the right price.

Should I sell my business?

The motivations for selling a business are many: you might be keen to exit while the company is at peak performance to leave on a high; you might be moving on to a new venture or perhaps you need more time to look after yourself or your family. Whatever your reasons, it’s important to keep in mind that selling your business will take time and preparation – so, the more forward planning you can do, the better.

With a clear reason in mind, the next step should be to set in stone your specific objectives for the sale. These will likely include securing the livelihood of your loyal employees, setting a target price and determining an ideal timescale for the transaction.

When is the right time to sell my business?

The decision to sell your business should be followed by careful planning and allow time for you to sufficiently groom the organisation for profitability. We recommend to those selling their business out of choice to take care with timing and take into account the economic cycle, current market and potential changes in tax that could affect the outcome of the sale.

How can I prepare my business for sale?

Any buyer with sense and a legal team will conduct due diligence on your firm to get an understanding of who you are, where you are in the market and how well you have performed financially.

Getting your proverbial ducks in a row should therefore be a top priority – your people, your processes, your systems, reporting and records should all be in order to ensure speed and certainty in the transaction. Particular attention should be dedicated to your accounting system and the accuracy of your records and balance sheets, as no meaningful deal will be able to close without this.

Instilling confidence in prospective buyers demands you to minimise the risk involved in the purchase, and while part of this is about transparent financial records, it also means identifying potential weak spots or issues you think could undermine a buyer’s belief in your business. Dependence on a few large customers, for instance, or overreliance on a supplier will be seen as risky to the buyer. If you have any informal agreements with suppliers or customers, setting them in stone with a contract will further aid in creating an attractive proposition.

To this end, solidifying contracts relating to premises will demonstrate to the buyer that your business is under control and that there are no loose ends waiting to trip a new owner up. When it comes to preparation, the earlier you start, the more time you have to increase the value of your business and generate interest from potential buyers.

How can I find a buyer for my business?

Just as you would define your target customers for a product launch, the sale of your business will require you to draw up a list of potential buyers for you to engage. The list could comprise of competitors, suppliers or your customers; you might choose to focus on investment companies or set your sights on new entrants in your industry and potentially foreign companies.

Once a list has been created, you can start approaching potential buyers to determine their interest. Typically, this will be done anonymously through a trusted advisor for your business, who will meet with a contact from a firm looking to buy. Before the meeting takes place, have your lawyer draft a confidentiality agreement and ensure that this is signed by your potential buyer before any negotiations take place.

The next step is to send interested buyers the sales memorandum, which should set out the timescale for the transaction you have decided, detail where and when you will meet buyers and specify a request for opening offers.

Which buyer should I sell my business to?

Just as a buyer would perform due diligence to mitigate the risk in an acquisition, you as the owner should take the time to weigh up the offers on the table and seek affirmation that such offers are backed up by the right board and shareholder approvals. Draw up a shortlist of the most competitive offers and instruct your lawyer to assist in weighing up which are the most alluring and which come with a serving of risk on the side. It should go without saying that buyers without the finances to make the purchase should be struck off your list immediately.

How can I sell my business for the right price?

With opening offers rolling in, it’s time to start the discussions on price. Beware of buyers who attempt to low-ball and play down the value of your business but be realistic about the price you are likely to sell it for. Remember, confidence is key in negotiations, and the last thing you want to do is come off as uncertain on the worth of your own venture.

Having undertaken your research, consulted with advisors and taken months if not years preparing your business for this moment, you should know what a fair price looks like. Setting and holding out for this amount will demonstrate to buyers your own confidence in the business. In negotiations, always be ready to counter negativity by emphasising future opportunities  but try to be open to negotiation if you deem it worthwhile.

What are the next steps?

With offers on the table, your goal is to close the best deal with minimal delay. At this stage, you might choose to play off potential buyers against each other as a bid to raise the offer – depending on the circumstances, it could result in completion of the sale for a higher price. The next step will be to formally choose a buyer and agree terms of the sale, responsibilities moving forward and your role in the future.

Your lawyer should help you to draft the heads of terms that sets out the key points of the deal and binds both parties into an exclusivity period in which you cannot negotiate with any other interested parties. Remember to let other buyers from your shortlist know you have signed such an agreement and try to keep at least one of these buyers interested as a safety net should the current deal fail to materialise.

Completing the sale of your business

Before the buyer’s offer is finalised and the sale is completed, further due diligence on their part will be undertaken as a means of reducing the risk involved. Their legal team will likely take this opportunity to check that all ownership of key assets and relationships are backed up with watertight contracts.

Provided that there are no glaring red flags and neither the buyer or seller have niggling concerns to raise, the sale should move towards completion. Many legal issues are covered by warranties and indemnities that you, as a vendor, will almost certainly be asked to sign. Have your lawyer read through these carefully before proceeding.

It’s worth noting that according to EU rules, any business with over 50 employees must by law notify their staff and be transparent with regard to how the changing ownership will affect their jobs now and in the future.

Are you considering selling your business? Don’t rush into it without the right advice. Our specialist corporate lawyers have the expertise to guide you through the process, mitigate risk and close a deal that benefits you and your business. Get in touch with us to arrange an appointment on 0333 772 0826 or fill out the short form on our contact page and we will respond as soon as we can.

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