News & Insights

Key considerations for selling a business

We have helped many businesses of different sizes prepare for sale. This can be done by a sale of shares, whereby the shareholders sell their shares in the company or by way of sale of assets whereby the company sells the assets of the business. An asset sale allows a purchaser to choose what is included in the sale.

Before engaging with a potential buyer, there are a number of practical steps which can be taken to ensure that your business is ready to be sold:

  1. Finances

Financial books and records are of particular importance. The gold standard is audited financial statements which provide assurances to third parties that the financial position and results of the business have been accurately reported. If your business is not audited, financial statements prepared in accordance with applicable accounting standards are required. Tax returns should be filed in a timely manner and all taxes owed by the business should be paid, including applicable taxes such as VAT, as well as payroll taxes.

  1. Value

Having your books in order will allow you and potential buyers to accurately value your business and lead to a smoother negotiation. A budget and cashflow forecast will also help to support your business valuation as a ‘going concern’, particularly, if these go back a number of years, showing a consistent and proven track-record.

You will also need to review business contracts, Intellectual Property and other assets, plus consider goodwill and reputation built up with customers/suppliers. Ensuring that the agreements dealing with these items are in order is important so that no flags are raised during a due diligence process. From terms of business to supplier contracts, these should all be reviewed.

  1. Tax

How you sell a business will have financial and tax implications for the business and you personally. Getting advice to ensure the deal is structured in the most appropriate way and that takes into consideration taxes and other aspects is crucial. For example, creating a group structure which can have legal and tax benefits.

  1. Structure

A sale can be structured in various ways. The ‘best’ option will vary from business to business. Different structures are worth exploring to ensure the appropriate solution for you – this could result in staggered payments, deferred consideration, earn-out mechanisms or another suitably structured deal.

  1. Property

The buyers of a business may not want to buy any unused premises or have long term lease commitments. There are various ways for a business to separate a business’ property interests from its trading interests.

A buyer will want to see all title documents and ensure that the title is in order and planning permission is in place, so it is important to have the title documents ready for review. If the property is mortgaged, get in touch with the bank to ask about the location of the title deeds.

  1. Employees

An employer has numerous responsibilities towards its employees and a review should be taken of employment arrangements. If shares are being acquired by way of a share purchase agreement, the employer remains the same. If a business is being acquired by asset purchase agreement, employees are entitled to transfer to the new owner, if the new owner continues to carry on the business as a “going concern”.

  1. Contracts

Having robust contracts in place with suppliers and customers is key. Checking the fine print, ensuring they are relevant and up to date is vital. From terms of business to supplier contracts, these should all be reviewed.

A purchaser will want to ensure that they aren’t responsible for pre-acquisition work that they had no influence over and this will be achieved by a robust due diligence process followed by a robust agreement which takes into account all eventualities.

If you have queries about buying or selling a business, MWM are happy to assist.