Who’s Involved in Selling a Business?

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Selling a business is not easy – selling it well is quite a challenge. This will be one of the most important transactions a seller will ever undertake and being properly prepared and having the right advisers around him/her is critical to achieving a good outcome.

The Team & Roles

A Business Broker will advise on business valuation, lead the marketing activities to identify potential buyers, support buyer meetings, manage the negotiations, draft the Heads of Terms and coordinate the legal stages.

A good broker will charge only a small amount upfront (enough to ensure commitment from the seller), with the majority of fees contingent on success.

An Accountant will advise on the tax implications of a sale, including share vs assets, how to handle surplus cash in the business etc The accountant also needs to be proactive in producing up to date financial information, both statutory and management (a potential buyer understandably has a strong thirst for up to date information) and also support the due diligence process.

 A Corporate Solicitor will draft the legal documentation based on agreed Heads of Terms and guide a seller through the required warranties and indemnities that form part of the sale. Never appoint ‘the family solicitor’ – the solicitor selected by the vendor needs to be used to handling business sales and in the case of a share sale, MUST have corporate experience.

A Financial Planner / IFA develops a plan in advance of the sale regarding how the proceeds of a sale will be used / invested to ensure that the transaction is completed in a tax efficient way for the seller. For example, it may be tax efficient for the company to make pension payments ahead of a sale.

An HR Specialist / Cost Reduction Specialist. While a sale will happen without them, both can ensure the business is in better shape to achieve the best sale result. Having employee contracts and HR policies in place is important to a buyer and ‘booked’ cost reductions can improve the future financial performance of the business and hence value.

The Sale Process

Your business broker will lead the process until Heads of Terms are agreed, at which point the solicitor takes over, with the broker coordinating the process and keeping a close eye, particularly on the commercial aspects of the deal. The stages of the selling process are as follows:

  • The owner needs analysis: at a simple level this will cover such areas as acceptable deal structures (in 99% of cases there is a deferred element to a deal) and over how long and in what capacity the owner is prepared to assist the buyer. If an owner has a more complex financial position, there may be a need to consult with the seller’s financial planners.

 

  • Valuation: the broker should carry out a detailed valuation of the business to determine a guide price. This requires a proper understanding of, often complex, accounting information, financial forecasting, different valuation methodologies, as well as a good knowledge of the market.

 

  • Business Sale Document: this should be a well-written, comprehensive document, presenting the business in a fair but positive manner and which provides serious purchasers with all of the basic information they need to determine their interest in the business, without giving away trade secrets.

 

  • Marketing: the business will be advertised, anonymously, via a number of different channels such as public and corporate business selling websites, the broker’s database and contacts and by direct approaches to targeted potential acquirers. The marketing strategy needs to be flexible so that if sufficient interest is not being achieved the correct adjustments are made.

 

  • Heads of Terms: typically the marketing process will result in half a dozen meetings or so with different buyers, supported by the broker. The majority of each meeting will be the buyer quizzing the seller on multiple facets of the business, but it is also a chance for the seller to assess the buyer, judge personal chemistry etc. The broker is on hand to advise on the process, field questions on the business financials if this is not the seller’s strong suit and handle any negotiation aspects (although these typically start after the buyer meeting). Once negotiations have been completed to the seller’s satisfaction (and throughout the process, the seller retains the right to say ‘no’), the broker will draft Heads of Terms, not a legally binding document but an unambiguous and comprehensive reflection of the deal agreed.

 

  • The solicitor takes the lead at this point, coordinating responses to the buyer’s due diligence requests and ultimately liaising with the buyer’s solicitor to produce an agreed Sale & Purchase Agreement, which adequately protects the interests of the seller. This is normally a particularly challenging and stressful part of the process and the broker will step in to help remove roadblocks and keep momentum in the process – a deal rarely improves after Heads of Terms but can deteriorate if, for example, the performance of the business dips or if there is some shock to the economy and hence time is the enemy of the seller.

 

  • After completion, the seller’s accountant will usually produce the completion accounts, including a completion Balance Sheet. The broker and solicitor will stay involved to support any issues that arise from the completion accounts or subsequently deferred payments, or if there are subsequent claims by the buyer against any of the warranties.

 

Anderson Shaw Corporate Finance Ltd is always pleased to have the opportunity to speak with a business seller considering a sale, to answer any initial questions about the process, suggest ways to maximize value and to provide a free preliminary valuation, allowing a seller to judge whether a sale will likely meet their financial needs.

Anderson Shaw Corporate Finance Ltd
www.anderson-shaw.co.uk
ce@anderson-shaw.co.uk
02476 100476

 

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