21st February 2019Thinking about selling your business?

Consider your options

Think about whether a sale is actually the right path for you and your company. Starting the sales process is a big commitment, so it’s sensible to reflect on your motives for selling, and what your alternatives may be. Consider whether you want to continue with the business for any period post-sale or if you would prefer a clean break. Also question whether it’s the right time to sell, in terms of the market and the lifecycle of your business.

Preparation

By failing to prepare, you are preparing to fail!

Depending on the current state of your company’s internal systems and controls, you may need to spend at least several months getting your company ready for the sales process. It’s important to consider:

  • Financials. Ensure all your records are up-to-date and all necessary financials have been prepared. It’s important that the figures are as accurate as possible – so spend time now considering whether that bad debt should be written off, if stock should be written down, and whether provisions should be recognised, as any weaknesses will be uncovered during the due diligence process.
  • Systems and controls. Make sure that all your systems are transparent and easily accessed. Consider whether further management information systems or financial controls should be introduced.
  • Key contracts. Make all material contracts available for the due diligence process and review them so that you are aware of any change of control or other provisions which could raise issues on sale.
  • Management and employees. Prepare for your departure from the business with a succession plan, ensuring the management team are capable of continuing after the sale. This will help ensure a smooth transition and help give potential purchasers comfort over the future of the business.

Appoint advisers

Professional advisers can really add value in assisting with the sale. They will help you to present your company in the best possible light, advise on the valuation of the company, compile an information memorandum for potential investors and can assist with aggregating due diligence information, handling due diligence queries from potential purchasers and negotiating heads of terms. Always take tax advice to ensure that the sale is structured in the best possible way for you. You will also need to appoint a lawyer to assist with the sale agreement. Select advisers that you trust, and that you will have a good working relationship with.

Due diligence

Expect a lot of questions! It’s common for the following to be scrutinised during the due diligence process:

  • History of the company
  • Historical financial information – the annual financial statements, management accounts and supporting evidence for at least the last three years
  • Key contracts – including leases and contracts with suppliers, customers and employees
  • Forecast financials and supporting assumptions
  • Taxation – including Corporation Tax returns, VAT returns, and PAYE filings

Finally, it’s vital to be transparent during the process. You will be required to provide supporting documentation to verify all the information provided.

Sale Agreement

Whether you’re selling the trade and assets of your business or a company, you will need some form of sale agreement. Your lawyers and accountants will assist with the drafting of this agreement and make sure you understand the content of the final agreement and the warranties and indemnities which you’re accepting as part of the deal.

It’s worth noting that you should not under-estimate the time involved in selling a business. Due diligence can be time-consuming and high-pressured, so it’s vital that you have the management resources available to deal with this at the same time as running your business.

 

Key contacts

Helen James HW Fisher

Helen James
Corporate finance partner

020 7874 1163
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