During challenging economic times, it might be a necessity rather than a choice.
Whatever the reason, it’s important to approach a sale with your eyes open. Here are some questions and suggestions to help you with that:
Who is your buyer?
You might know who you want to sell to, perhaps a local competitor or an employee. If you don’t have anyone in mind, you can seek suggestions and introductions from professional advisers. If you expect significant interest, you might consider an auction, but how widely do you want it known that you’re seeking an exit? Might it worry your staff, customers or suppliers?
What needs to be fixed?
Put yourself in the buyer’s shoes. They won’t want to inherit ongoing disputes with customers or employees, missing or incomplete records. They will want to know you have good title to the assets and power to sell. Try to resolve any issues proactively, ideally before going to market, or it could result in a potential buyer withdrawing or reducing their offer.
Do you need any third party consents?
If business premises are leased, on what terms will the landlord agree to deal with the buyer and release you? Who else might you need to consult? Are there other shareholders or investors?
How will you protect confidential business information?
Before making any information available to a potential buyer, put a non-disclosure agreement (NDA) in place. That will restrict the buyer’s use and further disclosure of the information you provide. But understand the limitations – once information has been disclosed, it can’t be undone. If you’re dealing with more than one interested party it might be difficult to prove the source of a leak, so consider whether each bidder is serious and in a position to move forward with the purchase.
Are you prepared for the due diligence enquiries?
If a buyer is experienced, their approach to due diligence will likely cover accounts, finance, assets, business contracts, insurance, compliance, data protection, health and safety, employees, tax and more. Be prepared! Subject to having an NDA in place, make all relevant information and supporting documents available to help the deal progress swiftly.
Is the deal tax-efficient?
Check the eligibility criteria for Business Asset Disposal Relief (previously Entrepreneurs’ Relief), as you might be able to reduce the capital gains tax liability to 10%. Also be considerate to the buyer’s tax position and preferred structure – this will affect the value of the deal for them and the price you can achieve.
Do you want to keep working in the business?
It can help settle staff and customers. It might also be desirable if payment of the purchase price depends on the continuing good performance of the business. You will be there to help keep things moving in the right direction, but consider carefully how long you want to be tied in for – and how well supported you will be.
It’s entirely normal for other questions to crop up during the sale process, but this is hopefully a useful guide and starting-point for anyone considering a sale.
Alan Gilfillan is a Partner at Balfour+Manson