Thinking of selling your business? Key issues and pragmatic solutions

Key issues and pragmatic solutions

Whether you are already in the process of selling your business or thinking about succession planning for some point in future, it is never too early to start taking steps to maximise the chances of a successful exit.

The process might seem complicated or daunting, but this article sets out a few key issues to consider and associated quick wins.

Finding a buyer

You might already have been approached by an attractive acquirer or have a potential buyer in mind. If so, great.

But for many thinking about selling their business the hardest part can be finding the right buyer.

There are excellent brokers and agents out there who can certainly help with finding the best acquirer for your business, but in the first instance we’d recommend thinking about people you already know, such as:

  • one or more people who work in the business (whether directors, employees or consultants) who may be able to use loans and/or the company’s profits to fund a management buyout
  • another business in your supply chain – this could be a major supplier or client you often work with, or perhaps a competitor
  • large corporates, aggregators or private equity investors who are actively buying up or investing in businesses in your industry

If you are lucky enough to have a number of potential buyers you may want to set up a competitive bidding process or auction.

Structuring the deal

Another key issue to get right is the deal structure.

There are a number of important considerations, such as:

  • Purchase price – of course, the price is key to almost any seller. It is important to have a realistic valuation of your business (with professional help if required). You should also have a clear minimum sale price in mind and be prepared to walk away or find an alternative buyer if negotiations prove unfruitful.
  • Payment terms – sometimes even more important than the headline price. There is often a tension between maximising the sale price and getting the cash up-front on completion. If a large part of the valuation of your business is based on its future growth or earnings potential a sensible buyer may insist on some kind of earn-out or deferred payment mechanism. This can lead to scope for abuse or arguments later, as well as risk over the creditworthiness of the buyer. An escrow account or other security arrangements can help with this, but it is important to consider all options carefully and negotiate the right solution for your business and transaction.
  • Asset v share sale i.e. whether you will sell all the shares in your company or just particular assets that make up the business. There may be important commercial considerations (e.g. if you need to hold onto particular assets of the company), but tax issues are often decisive here. It is vital to make sure that your accountants have the experience and expertise to advise on this and other transactional issues.
  • Transaction documentation – whilst we always prefer to keep legal documents as clear, straightforward and ‘plain English’ as possible there is no getting away from the fact that there is likely to be a relatively large volume of documentation in a business or share sale, especially in an arm’s length transaction to a third party. The devil really is in the detail so it is important to review all documents carefully with appropriate professional assistance, to minimise the risk of anything coming back to bite you later.

Skeletons in the closet?

Due diligence is one area where a stitch in time really can save nine.

We would always recommend getting your house in order and doing as much internal due diligence as possible before letting any potential buyers start doing their own digging.

This is another area where making sure you have the right accountants on board is very important, because financial, tax and accounting due diligence can be as important as legal due diligence in practice.

It’s generally a good idea to be transparent about any due diligence issues uncovered but if we know about potential issues in good time we may be able to help you resolve them or at least present them in as benign and non-threatening a way as possible.

It will often make an issue stand out like a sore thumb if we have to disclose it partway through a due diligence process, for example in response to a potential buyer’s follow up queries.

And of course any seller will want to avoid or at the very least minimise the risk of potential claims (say for breach of warranty) post-completion.

This all emphasises the importance of knowing about any potential issues ahead of time and disclosing them carefully in a way that protects you from potential claims.

Does this sound like you? If you want more information on any of the above, please contact our Corporate/Commercial Associate Solicitor Varishma Assani

As seen on the Ham&High digital magazine, click here for the original feature.

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