Thinking Of Selling Your Business?

If you’ve shed blood, sweat and tears building up your own business, the decision to sell it may be one of the hardest you’ll ever make. However, there can be compelling reasons for wanting to make the break: you may decide it’s time to retire to the sun or you may need some finance for the next exciting project - or maybe shifting market patterns suggest that you should get out while the going is good.

One thing’s for sure, whatever your reasons for selling up, the level of care and effort you put into the sales process will have a significant influence upon the price you receive for your business - and upon how long it will take to complete your sale.

Forward planning

Selling a business is not a quick-fix solution: the process can begin as much as a year or two in advance. You’ll need to have a clear understanding of your objectives, an informed view of the marketplace and, above all, time to prepare your business so that it is in the strongest possible position to maximise proceeds at the time you sell.

Professional help

Early involvement of an experienced solicitor and accountant is vital: they will advise on how best to groom your business and allow you more time to carry on with its day-to-day operation. They may also assist in valuing the business, identifying the best strategic purchaser and advising you of tax implications.

Fail to prepare and prepare to fail

If you’re serious about getting the best price for your business, you’ll need to do more than simply tweak the figures on the balance sheet. You need to take an objective look at your business from every angle and identify where and how you can make it more efficient and profitable so that it proves irresistible to potential buyers. You’ll also need to consult – and if necessary, negotiate with – other shareholders and review the terms of any shareholders’ agreement.

Areas of the business which you should consider include:

• improving profits through identification and elimination of excessive or unnecessary personal benefits and/or expenses

• increasing your sales figures through aggressive campaigning or offering special deals for customers

• ensuring that employment contracts are formalised and up-to-date

• ensuring commitment from customers and suppliers by formalising deals with appropriate contracts

• ensuring that an effective communications plan is put in place to keep staff, customers and suppliers informed of the possible change

• reducing costs by avoiding big purchases in the run up to the sale

• ensuring that your information systems are up-to-date and transparent

• removing uncertainties in respect of any disputes, claims and actions against or on behalf of the business

• putting a tax efficient structure in place to ensure personal tax liabilities are reduced on disposal

• working at establishing a market presence that differentiates you from the competition – some businesses undertake some pre-sales PR to raise their profile

• ensuring the business looks its best for when potential purchasers visit – this may be as simple as a new coat of paint for the premises

The sales process

 Once the groundwork has been done in terms of getting the business into shape, you’ll need to put together an information pack for prospective purchasers. This should include:

the information memorandum – this is the prime selling document and is governed by the Financial Services Authority. It will include basic information about:

• details of your organisation

• position in the marketplace

• operational activities

• products/services offered

• details of management and staff

• prospects for future growth

• financial information, including :

• 3 years’ profit and loss (income) statements

• tax returns for the business

• details about any leases

• a list of loans against the business, with balances and payment schedules

• business plans

Marketing the business

With your business now (hopefully) operating from a position of strength, and armed with all the necessary information, you can now think about marketing your business. But give some thought to what time of year might be best to start: sales cycles or seasonal fluctuations may have a further impact on a potential buyer’s perception of your business.

Professional advisers will be able to use existing contacts and networks to identify potentially suitable purchasers and will also know how to research other possibilities. They will also usually make the first approach to a potential purchaser. Other possible marketing channels include newspapers, trade magazines and the internet.

The bidding process

 Following the initial approach, prospective purchasers are usually given up to six weeks to propose an indicative bid. Due diligence may be carried out on your behalf during this period to provide more in-depth information than the information memorandum and to clear up any areas of uncertainty. Following this more detailed report, prospective purchasers will be asked to submit formal bids. Obviously, the more interest you can generate, and the more competition for the purchase, the better the price you should be offered. Your professional advisers will help to evaluate the bids and negotiate with potential purchasers.

Once you award exclusivity to one purchaser, it is normal for that purchaser to then undertake their own due diligence in order to verify that all the information you have provided them with is correct. Only then will the purchaser be in a position to decide whether to continue with the acquisition, or perhaps lower their offer.

Completion

Once a deal is struck, the solicitors will need to put in place a ‘sale and purchase agreement’ and final negotiations will take place before contracts are exchanged.

If you would like more information about how we can help you fulfil your company secretarial duties contact us.

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