Eight steps to getting your business sale ready

On behalf of Attwaters Jameson Hill posted in Corporate, Company and Commercial on Tuesday, March 1st, 2022

As the old adage goes, ‘Fail to prepare, prepare to fail.’ It’s true of many things in life – from exams and job interviews, to starting up and growing your business, to formulating a comprehensive plan for your business sale. In this blog, we’ll be focusing on this latter undertaking, explaining in eight steps how you can get your house in order in preparation for your buyer’s legal, accounting and tax due diligence and facilitate an expedient and tax-efficient sale that delivers your desired outcome.

Step 1: Appoint the right team

Selling a business is not a simple process – it can take months or even years to plan for an effective sale. Experience is hugely important to ensure a smooth transaction and a satisfactory conclusion for both parties. So, if you’re even vaguely thinking about putting your business on the market, now is the time to appoint a legal team to advise you and to get preparations underway.

When we’re instructed by a client, for example, we will spend time with you getting to know your business and understanding your goals for the future so that we can advise on the best type of transaction for your circumstances. Throughout the sale process, we’re on hand to support clients with every aspect of the transaction, from negotiating heads of terms, preparing thoroughly for your buyer’s due diligence and drawing up the final sale agreement.

Step 2: Find out what your business is worth

Having your business valued is an important next step in the process. Firstly, having an accurate valuation in front of you sooner rather than later will give you an understanding of the areas to focus on to increase profitability and resale value in the leadup to putting your business on the market. Secondly, it will give you stronger bargaining power when you do come to sell and help you negotiate a higher price. This is because knowing your business’s current value will help you understand what a reasonable deal looks like, so you don’t take less than your business is worth. Thirdly, valuation reports will also typically look at past and future growth trends, giving your buyer a better idea of the business’s future profitability. 

Step 3: Look at your tax position

Your legal team will work closely with your accountants and tax advisers to help you devise the best and most tax-efficient sale structure for your business. We’ll explain the taxes that may be due upon the sale of your business – such as Corporation Tax and Capital Gains Tax (CGT), and how to take advantage of available reliefs to minimise your tax liabilities. For example, shareholders may be eligible for Business Asset Disposal Relief (BADR) – formerly known as Entrepreneur’s Relief – which allows them to pay a discounted rate of CGT. Meanwhile, those selling their business via an asset sale may be unaware of the potential double tax charge where Corporation Tax is incurred on chargeable gains, in addition to income tax when the proceeds are paid out to shareholders.

Step 4: Get your paperwork in order

Having your house in order will make your business much more appealing to a potential buyer. Buyers will conduct extensive due diligence to understand the potential risks and liabilities to which they may be exposed following their purchase.

Your legal team will be on hand to help you prepare for this due diligence, including (but by no means limited to):

  • Preparing non-disclosure agreements (NDAs) to protect your business in case a prospective buyer reviews confidential documentation but does not proceed to purchase.

  • Working with your accountant and financial advisers to ensure that your records are complete and accurate.

  • Reviewing all the agreements, contracts and licenses into which your business has entered and ensuring the paperwork for said agreements is present and correct, including contracts with suppliers, sponsors, landlords and other business partners.

  • Reviewing and preparing paperwork relating to employment and management, including staff contracts, health and safety policies, risk assessments, etc.

  • Reviewing intellectual property documentation and ensuring that proof of ownership of trademarks, company names and other intellectual property is fully and accurately documented.

Step 5: Plan your route to market

There are many ways to get your business on the market and attracting potential buyers. Some sellers may already have a buyer in place for your business, while some may feel confident enough to directly approach other businesses, such as a competitor, they believe may be interested. Others will place advertisements in relevant publications and outlets. For the best results, however, many sellers will use a broker, corporate finance professional or sales agent to put their business on the market and gain access to a broader range of potential buyers. We can assist you in appointing the right professional with the skills and experience required to get the best deal for your business and circumstances.

Step 6: Agree heads of terms with your preferred buyer outlining the structure your transaction will take

Once you have a buyer interested, it’s time to move on to the negotiations, which are provisionally drawn up in a document called heads of terms. There are two main structures that a business sale can take: a share sale or an asset sale; the route you and your buyer decide to take will usually be drawn up here. You can read more about the differences between the two structures and their various advantages and disadvantages in our blog Share sale or asset sale? Which is best for your business?

Your heads of terms will serve as an agreement in principle between yourself and your buyer, outlining the transaction structure, the main terms agreed, a proposed timetable for the transaction, and other preliminary details.

Step 7: Finalise your transaction documents

Once your buyer’s due diligence is complete and they wish to finalise the deal, your legal team will help you prepare the final sale agreement, which will outline the precise terms of your transaction. These will have been broadly sketched out in the heads of terms, but your sale agreement will be more precise and account for any renegotiations of terms that may have taken place during the due diligence process. Once the final price and terms are agreed, the buyer will sign a binding sale contract and you will be able to finally reap the rewards of your business sale.

Step 8: Manage the proceeds of your sale with a strong private wealth strategy

Managing the proceeds of your sale with an effective private wealth strategy can ensure you have the capital you need to meet your future objectives, whether these be funding your retirement, investing in a new venture or making lifetime gifts to your children and grandchildren. As a private wealth law firm, we specialise in working with clients to preserve, manage and grow their wealth for the future. Our advice covers commercial property and business support, in addition to wills, trusts, Inheritance Tax planning and probate, and is designed to provide you with the ongoing support you need to manage your wealth following your business sale and into the future.

To see how our firm could help you get your business sale ready and guide you smoothly through the process to completion and beyond, please contact our Head of Corporate, Company & Commercial, Mark Stigwood, on 0203 871 0022 or email mark.stigwood@attwaters.co.uk.

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