The sale of your business will be a realisation of your hard work over the years. You may be contemplating a sale to a trade buyer or someone who is already involved in the business, such as a management buy-out. Selling your business might be your “exit strategy” to cash in and to retire. You might be planning to stay with the business after the sale, working with the new owner bringing in money and ideas to expand the business.
The sale will take time, and there are a number of matters that you will need to deal with during the process. You will probably find it difficult to dedicate time and resources to the sale, whilst at the same time running the business. Together with your accountants, we will advise you on the best way to sell and value your business.
1 How will the sale be structured?
There are two principal methods of selling a business in the UK:
Asset sale. This involves the buyer acquiring a bundle of assets and rights, and sometimes assuming responsibility for certain liabilities, relating to the business.
Share sale. This involves the buyer acquiring all of the shares in the company which carries on the business.
While both structures are capable of achieving broadly the same commercial objective, there are fundamental differences in both the legal effect and the tax treatment of the two methods.
2 There will be tax issues
You should think early on about the possible potential capital gains tax liabilities and inheritance tax implications, which can vary depending how the sale is structured.
3 Confidentiality may be required to maintain value
In the early stages in particular, you should be careful not to give out too much information about your company. Before you release any confidential information about your company, you should get the potential buyer to sign a non-disclosure agreement (NDA). It is also likely important to keep the sale secret from your customers and staff.
4 Initial negotiation will be on the Heads of Agreements
We can help you prepare the Heads of Agreement which is the document outlining the principal details of the sale. The buyer will often ask for an exclusivity period during which you will not be able to talk to others about the sale of your business.
5 Due diligence might affect the sale price
Due diligence is the process by which the buyer investigates commercial, legal, accounting and tax aspects of the business. The buyer will often provide a long list of questions for you to answer. You should note that the answers might result in the buyer trying to re-negotiate the sale price with you.
6 You are likely to be asked to give representation and warranties on your business
The agreement for the sale of the business will include representations and warranties as to the situation of your business. Since the sale price is likely to be reduced if any of these representations and warranties later turns out to be wrong, we should consider them carefully.
7 Cash payment is sometimes in stages
Once the sale agreement is signed, the date is fixed for completion, when you will receive the money for the business. You might be keeping a financial interest in the business as the money is being paid in stages or in earnings related pay-outs which are dependent on the performance of the business after completion. You will want to think carefully about these since you will no longer have direct control of the business following completion.
Are you thinking about selling your business?