Businesses are sold for many reasons – to release equity for the owner or shareholders, to allow the owner to pursue a different lifestyle or concentrate on new ventures, or because the owner doesn’t have the resources to take the business to the next level.
Meanwhile, many aspiring entrepreneurs feel that buying an existing business is a safer bet than starting up a totally new venture, as much of the groundwork has been done.
Whether you’re the buyer or vendor, you’ll need to be aware of the process for transferring a business.
Finding a buyer or seller
As a potential seller, you may need to market your business and actively search for interested buyers to kick-start the sales process. These could be:
- competitors, including overseas companies
- your own management team – this is known as a ‘management buyout’
- financial investment companies
Put together a sales memorandum with an overview of the business, which shows the business is an attractive deal with good future prospects.
As a prospective buyer, you could look at your own contacts, try your trade association or industry magazines, or search a business sales website such as BusinessesForSale or Daltons Business.
Both buyers and sellers at this stage will need to get professional advisers, with experience of transferring a business.
Any potential buyer will want to research the business and its market before making an offer. The buyer may also ask for more information about the business such as key financial figures. The seller will normally ask the buyer to sign a non-disclosure agreement confirming that they will not misuse or pass on any confidential information.
Equally, the seller will want to avoid wasting time or disclosing information to purchasers who are unlikely to come up with a satisfactory offer. The seller should make sure at an early stage that any interested buyer can arrange the financing to complete a deal.
Heads of agreement
Once the main terms of a potential deal have been agreed, these can be formalised in a Heads of Agreement (or Heads of Terms) document. This should cover issues such as:
- what is being sold
- how payment will be structured
- whether the buyer has exclusive rights to negotiate a final deal, and for how long
- responsibility for costs incurred while negotiating
- any key conditions — for example, whether the seller will continue to be involved in the business or any restrictions on opening a competing business
Whether buying or selling, you will need professional help to make sure this agreement is fair, clear and legally sound.
Negotiation and finalising the contract
Once the Heads of Agreement is signed, the buyer will need to do thorough ‘due diligence’, looking at finer aspects of the business – for example, the terms of supplier contracts.
Based on this, there’s likely to be some final negotiations on the value of the business and terms of the sale. Whether buying or selling, you will need professional advisers to help.
Throughout the process, bear in mind that employees may be worried about the sale. Keep them informed in a positive way, and reassure them about the security of their jobs.
Under EU rules, if you have more than 50 employees you legally have to notify employees of changes that are likely to affect their jobs.
This article is provided only for general informational and educational purposes. It is not offered as and does not constitute legal or other professional advice on the subject matter in question. You should not act or rely on information contained in this website without first seeking professional advice on the subject matter in question.