INSIGHT: How to Get the Best Deal When Selling Your Business
There are all kinds of reasons for selling a business. It may be time to retire, move on to another venture, release capital from an existing business in order to focus on other interests, or you might just consider it the right moment in the growth curve of the business. Whatever the reason, the way you manage the transaction can have a significant impact on the time it takes, the financial outcome and whether the deal includes any onerous conditions.
Steve Hartley, head of corporate and commercial at Pearson, reveals his top tips for selling your business:
- Engage legal advice sooner rather than later
One of the most common mistakes that sellers make is to engage a legal team when they are in the final stages of negotiations with a buyer rather than when they make the decision to sell, or when they are beginning to think seriously about an ‘exit route’ in the future.
It’s important to bring a team together when you make the decision to sell so that your legal and financial advisers can help you groom the company or business for sale, locate potential buyers and structure the deal. This will not only ensure that you are in the best possible shape to maximise the sale price but it will also minimise the scope of any indemnities, conditions, retentions or deferred consideration, or any other attempts by the purchaser to apportion more of the risk on the seller’s shoulders.
Early engagement with a corporate solicitor is particularly important in making sure that all legal housekeeping is up-to-date as this can prevent any delays or unforeseen obstacles later in the process. We can assist in identifying any ‘skeletons in the closet’, for example, the failure to be registered under the Data Protection Act 1998, outdated terms and conditions of supply of goods or employment contracts, or errors and gaps in the company’s filing history at Companies House. We can also rectify them before the purchaser commences its legal and financial due diligence investigations into the business, thus leaving you better prepared to rebuff any attempts to chip the price.
- Get your timing right
There is no one answer to the question “When is the right time to sell?” as timing is such a personal matter for each business owner. However, sellers can secure the best chance of a robust valuation by waiting until after a period of a couple of years of good trading with solid forecasts for the next financial year. This does make it difficult to resist the temptation of continuing for “just one more year” of good trading, making the ultimate decision a delicate balancing act.
Leaving the decision to sell for too long can be a disadvantage. Buyers will question whether the company’s best years are behind it, if there is a management tier in place and if the business is over-dependent on you as the owner. Owner-managers rarely want to remain involved in a business post-sale beyond a brief hand-over period, particularly if they are looking to retire. If your business is overly dependent upon you and you are thinking of retiring in the next five years, now is the time to start considering putting that management structure, and exit strategy, in place.
- Decide what you’re selling, and to whom
When you do decide to sell, you can opt to dispose of the entire issued share capital of the company, where everything transfers over to the purchaser, lock stock and barrel. This is generally preferable to a seller as it is both cleaner and simpler and leaves no post-completion administrative issues for a seller to deal with. However, a purchaser is usually advised to pursue a business and asset purchase in order to cherry pick the assets they want and leave the liabilities and unwanted assets behind for the seller to deal with. Your legal and financial team should advise you on the pros and cons of each option to enable you to decide on the best structure for you.
Your eventual purchaser may be a friend, contact, competitor in the same industry, or even a third party introduced to you by your lawyers, accountant or corporate financier. However, do consider whether your existing management team has the ambition and wherewithal to purchase some or all of the business from you first.
- Know your value
While the realistic answer to the question “what is my business worth?” may be “whatever the marketplace will pay”, accurately valuing your business is one of the most critical aspects of preparing it for sale.
A robust valuation will put you in a stronger negotiating position with potential buyers, resist price-chips and allow you to plan ahead based on projected income from the sale.
- Be ready to sell
Your legal and financial team will help you ensure that your business is in good shape for the sale but you should continue to operate the business throughout the sale process, which often takes 2-3 months once a purchaser has been found. Throughout the whole process, it is natural for sellers to have doubts as to whether they are doing the right thing. It is therefore important that you are completely comfortable in your decision to sell – at the right price – and that it won’t be a regret the morning after completion.
For more information about buying or selling a business, call Steve Hartley on 0161 684 6942 or email firstname.lastname@example.org.Subscribe to our newsletter
Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.
This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.