Commercial News

“You can sell your business only once – getting it right is crucial”

Are you thinking of selling your business and retiring? If so, you need to start the planning stage at least a year in advance. It is not sufficient to instruct lawyers only at the point when you have found a buyer. You will doubtless have consulted your accountant and possibly a valuer in advance of putting your business up for sale, and you should also consult a solicitor.

Your business needs to be positioned for sale, and not just in relation to financial and management aspects. From a legal point of view you need to tie up loose ends and “get your house in order” by dealing with the following aspects: -

• If your lease is to expire soon, ensure that your Landlord will agree to a new one and get it put in place
• If you wish to retain freehold property in your own name following retirement, you may need to transfer the property out of a limited company and grant a lease back to the company
• If you run a limited company, ensure your statutory books are in order and all the shares are accounted for, minutes of board and shareholders meetings are available, and the correct information is registered at Companies House
• Turn informal deals with key suppliers and customers into formal written contracts
• Ensure you have written contracts or Directors service contracts in place with your key employees
• Consider what degree of involvement you wish to have in the business once you retire i.e. do you intend to remain as a consultant for a set period? It is often the case these days, especially in the service sector, that buyers will not simply pay for the business in one lump sum; the sale price is often linked to future sales or profits i.e. deferred consideration or “earn-outs” In that case you need to make sure that you retain some form of management control to ensure that those performance targets are met and that the buyer doesn’t make decisions e.g. sacking key staff, which may adversely affect the business, otherwise you may receive less than you are entitled to.

Before giving information about your business to interested parties who may well be rival businesses, suppliers or customers, you may want to consider instructing a lawyer to draw up a confidentially agreement to protect your business.

Once the sale has been agreed in principle Heads of terms are usually drawn up, this does not constitute a legally binding contract but nevertheless some parts of the agreement may be legally binding such as confidentiality clauses, an exclusivity period where you agree not to negotiate with anyone else during that period or agreements to pay legal costs in the event the either party withdraws from the sale.

There is lot to think about before you get to the point of completing the deal and going through legal due diligence and finalising the sale and purchase agreement. The more planning you do in advance the smoother the whole process will be.

If potential problems can be dealt with at an early stage and eliminated not only will your business be more attractive and valuable to potential buyers but the due diligence process will be shortened leading to an earlier completion of the sale.