9 things to consider when selling a business7 Jul 2020
So, you’ve come to a point where you’d like to sell your business, and you’re wondering what the key considerations are...
What will happen to your staff? How long will the process take? Will it be costly? Who do I need to speak to?
The decision to sell the business you’ve toiled over can be daunting, but the prospect shouldn’t be off putting to business owners. With the right preparation and advice, the process can be made as smooth and as stress free as possible.
But before you embark on the journey of selling your business, we’ve pulled together a list of things to consider:
Obtaining a valuation Obtaining a valuation for your business and getting that all important sales price can be challenging due to the many elements that need to be considered. The ways in which businesses are valued is sophisticated, and takes into account things like current profitability, brand reputation, client and employee retention rates, sales history and potential risks for the buyers. The many variables involved in calculating this figure means it’s necessary to enlist the help of a professional who can oversee the valuation and provide you with a reliable figure from the get-go.
The all-important question – is it the right time to sell your business? It’s difficult to know with full certainty when the best time to sell your business is, but you should consider how attractive the company is to potential buyers. The economic climate may have impacted your business negatively, which will be something a new buyer will consider. You should also think about any potential returns on long term investments and whether it’s worth waiting to reap the rewards. Every business will have quiet and busy times which will also affect profit and may be off-putting to buyers.Tax planning They say only two things are certain in life, death and taxes, so if you’re selling your business, you can expect to be hit with a tax bill. Capital Gains Tax is paid when profit has been made from selling or transferring assets in the form of the share of capital of a business. There are several ways you can offset the amount of tax paid using things like Entrepreneurs Relief, and with professional help you can navigate the often-confusing world of tax planning.
Potential risk pointsEvery business, no matter how successful it is will have potential risk points which may pose a problem later down the line if they’re not identified early on. Do you have any ongoing professional negligence claims? Are there outstanding debts from customers? Have you had any claims from employees which may pose a problem? These are just a few elements that need to be considered, and with the help of an expert, a disclosure letter can be drawn up to as part of the sales process to limit liability to those risks. Be wary, if your risk points aren’t identified early on, it opens you up to the possibility of a business owner lodging a claim against you later down the line or reducing the purchase price.
Limiting your liabilityWhen it comes to the sales contract, the most important aspect from the seller’s standpoint is making sure potential liabilities are limited, along with any indemnities and the warranties that you provide on the business. The buyer’s solicitor will draft the first sales contract meaning it will inevitably be in their favour. It’s for this reason that it’s vitally important to get detailed legal advice on how to amend the sales contract to protect yourself in the eventuality that the business doesn’t perform as well as the buyer had expected, or if any claims arise following completion.
What happens to your employees?When you sell a business, the employees generally remain with the company which will be controlled by the buyer post completion. You might want to consider he options of to moving employees over to any other company that you own in line with Transfer of Undertakings (Protection of Employment) regulations (TUPE) or to terminating the contracts of some employees. It’s also important to identify any potential claims from employees which may resurface and cause issues in the future. Outlining this from the get-go will help to avoid any nasty surprises.
Do you have any personal guarantees or charges that need to be distinguished pre-sale?Most companies have bank loans that need to be distinguished on the sale and the requirements of banks or charge holders must be manged to ensure that they are complied with and do not delay the sale. You also need to make sure you have no further personal liability for the business post sale. Restrictions post completion Are you willing to agree to non-compete provisions in the agreement which will apply post completion? Are there any other restrictions that will limit your ability to make a living/trade post completion? Get advice from a professional Even after reading this article, it may feel like there is still a lot to think about before selling your business. The prospect of selling your business should be exciting, and with the help of a professional, you’ll be guided through the process and won’t have to ever worry about any of the jargon.