Today I’ll be looking at the actual process of selling your business – from employing a business broker, to meeting prospective buyers, due diligence and the contract.
So where do we start?
- Employing a transfer agent or a business broker
You’ll need to employ a transfer agent or a business broker to manage the sale for you, unless you have plenty of time and an amazing accountant!
With someone else to manage the sales process, you can concentrate on running your business. It can take between six months and two years to sell your business.
A business broker can help with a lot of the preparation work. He or she can market and promote the sale of your business, validate prospective buyer’s credentials, give guidance on the valuation, and assist with all meetings and negotiations.
Because they have gone through the process many times, they know what can go wrong, and should save you time and money.
Business brokers either charge by the hour or agree a success fee when your business is sold. Expect to pay 3% or more of the sales price. Also expect to pay a setup fee starting at about £3,000. If there’s no setup fee then you can expect to pay a 5% commission on the sale price.
Some may ask you to agree a set fee. I don’t recommend this option.
Always check the contract, especially the small print including any cancellation clause.
A transfer agent is similar to an estate agent. They advertise businesses for sale and are not as actively involved as a business broker.
Choose a broker or agent that has experience selling businesses in your market. You also need to have a good working relationship with them as it can be a long process.
- Selling your business online
If your business is small and not complicated I suggest you look at selling it yourself.
There are dedicated websites such as BusinessForSale.com, Business-Sale.com, BizSale.com or DaltonsBusiness.com.
Use an anonymous profile, summarise the business, its revenue, profits and cash. Included details such as its general location, the reason for sale and contact details for further information.
You could advertise the sale in your industry’s trade press to attract competitors.
Alternatively, you could write a targeted letter to prospective buyers.
Consider how any communication can impact on your staff, customers and suppliers.
- Do your homework
Decide what you want from the sale. This should help you formulate the questions you’ll need to ask any potential buyer.
These might include:
- Why is the buyer interested in your business?
- Have they been looking to acquire a new business for a long time?
- How are they going to pay?
Research your potential buyer. Find out whether they’ve bought a business before and for what value. Did they make a success of it?
This is relevant to businesses of all sizes. You only have to look at the recent demise of High Street chain BHS following the sale by Sir Philip Green to Retail Acquisitions, controlled by Dominic Chappell, a former racing car driver.
- Confidentiality and next steps
The first thing to get in place is a confidentiality agreement to protect your business information from being leaked. This could impact on your business value, and undermine relationships with staff, suppliers and clients.
Once the confidentiality agreement has been signed, you can send the prospective buyer or buyers more detailed information. This can include:
- Profit and loss projections
- Cash flow projections
- The last three years of audited accounts
- Products and services sales history
Your accountant will provide the financial supporting documents for your buyer.
- Meeting prospective buyers
You or your broker will want to meet the buyer. Do this away from your business premises. The buyer will usually take the lead, as they’ll have lots of questions.
Ensure you come away from the meeting with answers to the following questions:
- How soon does the buyer want to complete?
- What’s the proposed length of the handover?
- Will the buyer need you to be involved in the business, at what level and for how long?
- Does the buyer want to keep your staff?
Don’t commit to anything at this stage.
Be ready to make compromises and make sure the deal is fair for both parties. Always stay positive during negotiations and work with the buyer to find a solution.
- Heads of agreement
This will outline the main terms of the sale, for example the price, date of payment, and any handover period. This is the starting point for the contract.
Make sure you know the tax implications of selling your business and seek advice.
A tax expert can also help you make the most of the sale proceeds.
- Due diligence, and solicitors
This is where your buyer’s advisers investigate your business. They’ll look at contracts, financials, assets, stocks, customer and supplier lists, your operations, staffing levels and bank records.
They’re trying to ascertain that what you have said about your company is accurate.
The buyer’s solicitor will usually draw up the contracts and initiate the due diligence process. Your solicitor will need to review all documents to safeguard your interests.
Your solicitor should be with you at meetings. Make sure you agree the solicitor’s fees before appointment.
- The contract
This document is based on the heads of agreement, and includes any items raised during due diligence as well as standard clauses. It covers the sales price, any future payments, guarantees and restrictive covenants. Warranties, shareholders’ agreements, and any share options agreements are also included.
The contract will be over 50 pages long!
You’ll need a tax clearance letter, which states that HMRC accepts the deal and won’t challenge it. Your accountant or solicitor can help with this.
Negotiations will take time. Contracts will probably be amended many times before both parties are satisfied.
At the final signing you should have your business’s statutory books, the certificate of registration, and all share certificates, keys, bankcards and chequebooks.
You’ll have to sign a lot of documents and all signatures will need witnessing.
- Transferring funds, and announcing the sale
Just like buying a house, the buyer transfers funds into his solicitor’s bank account. Funds are then forwarded to your solicitor, and then onto you – less their fee.
The sale announcement will then take place. This needs to be agreed with your buyer, as you do not want to upset them. In drawing up the announcement, also consider the business’s clients, suppliers and staff.
Employees will either be transferred across under TUPE regulations or they’ll face redundancy. If the new owner keeps you on as an employee or consultant, a big part of your role will include helping to reassure staff or to help manage the process.
It’ll also help the new buyer if you contact suppliers and customers to explain the change of ownership. Things will change but not immediately.
Selling your business can be a daunting process so please get in touch if you’d like more detailed advice.