The Process of Selling a Business
1. Preparing the business for sale
- Making sure your accounts are in order. We suggest having a chat with your accountant to see if there is anything that needs to be done to make sure that your accounts are in the best possible shape to show to a prospective purchaser.
- Reviewing your lease documents to make sure that there are sufficient rights of renewal or time left on the existing term to make the deal attractive. The last thing you want is to have a purchaser use the fact that the lease does not have long to run as a reason for requesting a discount to the purchase price.
- Have an idea of what your business is potentially worth – it would pay to get feed back from both your accountant and a business broker on this.
- Ensuring that all of your employment records are up to date and complete. This includes making sure that there are signed employment contracts in place for all of your employees.
- Reviewing any important supplier, manufacturing and distribution agreements to make sure they are assignable to any purchaser.
- Ensuring that you have, where possible, entered into binding contracts with important suppliers and customers.
- Making sure your premises, equipment and all operating procedures used in the business are health and safety compliant – if in doubt we recommend getting advice from a Health and Safety Consultant.
- Ensuring that you have protected all of your intellectual property as much as you possibly can – e.g. trademarks applied for and or registered and renewed (if applicable) and licence agreements entered into with third parties who are using your intellectual property. Do you have all relevant domain names and social media pages for your business?
- Resolving any disputes, you may be having with third parties that have the potential to affect the business.
- Is your website and any social media platforms you use up to date and showcasing the business in the best possible light?
- Anticipating any issues which a potential buyer may have and having an answer or solution for them.
- Have an idea about how you will sell your business – have a chat to a selection of business brokers. Find out what their terms and conditions will be and in particular their commission rates and other costs for marketing etc. Consider whether you will grant a broker an exclusive agency or not. Most of all it is important that you are comfortable with the broker you choose; you know what his or her strategy is, and you trust them.
2. Finding a buyer
Now your business is ready for sale, the next step is to find a buyer. If you have engaged a business broker, then this is their job. It is vital that any statements which are made about your business and its potential are strictly accurate and not exaggerated in any way. If any statements are made about the future potential of the business for example; its future profitability, then there must be evidence available to back up these statements.
3. The agreement
Negotiating the terms of your agreement to sell your business is one of the most important aspects of selling your business. It is usual for the purchaser to provide you with a sale and purchase agreement to review. You will then review the agreement and if you are happy with it sign it. Typically, however there is usually some negotiation to get to an agreement which both you as vendor and the purchaser are happy with. We strongly suggest you get legal assistance before you sign the Agreement.
4. The conditional stage
It is very common for a Sale and Purchase Agreement to be subject to a number of conditions including the purchaser completing a due diligence of the business, the purchaser obtaining satisfactory finance for the purchase, landlord approval (if there is a lease) and other conditions such as a the purchaser entering into employment agreements with a certain number of employees or franchisor approval (if the business is a franchise business).
Once all of the conditions have been satisfied you are legally obligated to sell the business to the purchaser. There will probably be some requirements on you pending settlement and these may include; terminating your employment contracts with any employees, establishing how much (if any) you need to pay the bank, arranging for release of any securities registered against any of the assets being purchased. If the business involves stock, then there is likely to be a stocktake to confirm how much is payable. If there is a lease involved, we will need to make sure the Deed of Assignment is signed ready for settlement. And if the business is a franchise business any requirements the franchisor has in relation to selling the business will need to be ascertained and satisfied.
This is when you complete the sale of your business. The purchaser pays the purchase price (less any apportionments) and ownership of the business is transferred to them. As your lawyers we will need to prepare a settlement statement which sets out the total amount payable by the purchaser taking into account any deposit paid and apportionments which need to be taken into account. Our role will also be to receive funds from the purchaser and pay out the bank any amounts owed to it and then pay you the difference.
We love helping our clients buy and sell businesses. If you are looking at selling a business get in touch with us as soon as possible. We can assist you to understand what you need to do to get your business ready for sale and guide you as painlessly as possible through the process.