You’ve put effort into making your business into the success it is so far, so on exit what are the things you need to do to maximise the value for you?
There are a number of things to consider in the lead up to selling a company:
- Putting the right professional team together
- Getting your shop window ready and understanding the value of your business from a buyer’s perspective
- Be prepared for the sales process and negotiations
- What are you going to do after completion?
1. Putting the right professional team together
You will need to assemble a dedicated team to work with you on the sale. This can include an internal management team and external legal advisers, corporate finance and tax advisors. The teams you put together will play an integral role in the sales process. The teams must co-operate, communicate and work together on a range of matters to ensure that the sale process runs as smoothly as possible and achieves the best outcome for you.
2. Get your shop window ready
Before engaging with prospective buyers, you should consider undertaking an internal due diligence process. This will involve reviewing your business from the perspective of a potential buyer and identifying the business’ strengths and weaknesses in order to position them correctly.
Addressing and resolving any issues in advance will help maximise the value of the business. It can also help save you money in the sale process going forwards.
You will also need to consider who you are aiming to sell to and what they will want to see. Remember the price of your business will ultimately be decided by the buyer and the value they think it is worth. Tidying up your business and positioning strengths and weaknesses will help you to maximise its value to the potential buyer.
3. Be prepared for the sales process and negotiations
The speed of the negotiations and agreeing the legal documentation varies from deal to deal, but can be greatly sped up by preparing your business for sale.
In terms of the legal documentation and process, the following key items will form part of your sale:
- Non-Disclosure Agreement;
- Heads of Terms
- Share Purchase Agreement
- Disclosure Process (where you have the opportunity to protect yourself against the weaknesses in your business identified in stage 2)
A crucial part to the sale process is requiring the buyer to sign a non-disclosure agreement prior to any sensitive information being provided to ensure your commercial information remains confidential. Next, it is commonplace for parties to enter into heads of terms setting out the key commercial points of the deal. This document can often help focus the deal by setting out a skeleton of agreed terms, but it can also hinder progress if the parties get too excited in the finer legal points at this stage.
The key legal document is the share purchase agreement. It will contain contractual terms, such as the purchase price and payment process, the shares being transferred, warranties and indemnities which protect the buyer and clauses limiting your liability to the buyer which in turn protect you. Your professional team will advise you on the form and content of these terms and negotiations should centre around agreeing a document which is as protective of you as a seller as possible.
As a seller, an important thing for you will be to ensure that the sale qualifies for entrepreneurs’ relief. Your advisers will need to structure the deal to qualify for that relief as this will mean your proceeds of sale, if these are within your lifetime limit of £1million, should be taxed at 10% rather than the full applicable capital gains tax rates.
4. What are you going to do after completion?
Congratulations, you have sold your business, but what next? You will need to consider whether you will continue in the business post-completion and if any part of the purchase price is conditional upon future performance?
Additionally, following completion, you will hopefully have a lot of cash. Have you spoken to your financial adviser as to what to do you will do with it and considered updating your will and inheritance tax planning?
How can we help?
This article has looked only briefly at how to prepare for a sale. We regularly advise businesses throughout the sale process and for tailored advice on how to prepare your business for sale, contact our experienced corporate solicitors.
Please contact Yavan Brar on 01189 899713, Matthew Lea on 01189 898155 or Chris Gemson on 01276 854669.
This article reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
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