How to Sell a Business
Introduction on Selling a Business

Selling a business can be the largest and most important deal of an entrepreneur's career. Whatever prompts the sale - illness, age, partner disputes, financial hardship - selling your business is a high-stakes transaction, with far-reaching financial and emotional consequences.

Selling your business could be the most important financial deal you'll ever make. For many owners, selling the business they've spent years building up can also be emotionally difficult. And unless you've sold another business previously, you'll have no experience to help you.

Selling a business represents a once-in-a lifetime opportunity to turn a career into a tangible profit.

A thorough understanding of the issues involved, as well as the necessary timescales, can help maximise the business’s value.

Owner managers who aim to place their businesses on the market need to address fundamental issues such as moulding the business into a saleable form; planning the owners’ financial position; evaluating market conditions; generating an attractive financial performance track record; and pinpointing the optimum time to sell. If all of the above are under control, maximum value can be extracted via the sale.

Shaping any business into a desirable enterprise can take up to two years, depending on the amount of work needed. During this period, particular consideration should be given to ensuring the incorporation of an unincorporated business, thus defining within a legal structure what is for sale; creation of a group structure which eliminates minority interests; provision of requisite management skills for the pre- and post-sale periods; agreeing key supplier and customer contracts; guaranteeing that litigation, environmental and safety issues are concluded; and ensuring that all assets required to run the business are actually contained within it.

Your business’s tax position is pivotal, because you should maximise post-tax gain. Examine how shares in the company are held and your family’s financial planning, including children’s trusts and how the sale’s timing will affect your future. Tax changes are inevitable and may affect proceedings. Movements in taper relief, capital gains tax legislation and trusts are constantly under review. It’s best to monitor trends with your advisers on a regular basis.

The optimum marketing period should be identified as part of the sale process. This is influenced by factors including conditions in the relevant sector and the general market for private company transactions, proposed tax and regulatory changes, the company’s optimum timing in terms of readiness for sale, potential profitability and the need to sell.

As far as valuation of a private business is concerned, it is undertaken on a number of different bases. Any valuation fluctuates according to the net assets of the business, profit growth potential and the acquirer’s aims, allied with the state of the business being acquired.

Acquirers need to know whether or not the business needs capital investment. Will it require active or passive management? Are there urgent issues which need to be addressed, such as environmental problems? Are its customer and supplier relationships good? Are there any fundamental uncertainties overshadowing the sale? 

Beware: there is an art to dealing with potential buyers. Reticence in key areas may give the impression that you have something to hide and quell a good deal.

Once bids have been received and the preferred buyer identified, heads of agreement are finalised. These define the key commercial terms of the transaction: price, warranties, on-going relationships, conditional factors and due diligence.

Once heads of terms are agreed, you may have shaken hands, but the paperwork has just begun. Many shareholders expect the process to be quick and painless - a naive assumption. Even if all preparatory work has gone smoothly, the sale itself may take four, six or nine months to complete - a once-in-a-career, all-consuming event. Planning and preparation reap significant financial rewards for the patient vendor.