How do I sell my business?

For many business owners, selling a company is one of the most significant financial and personal decisions they will ever make.

Yet most owners will only sell a business once, meaning the process can initially appear complicated or unfamiliar.

The starting point is not necessarily finding a buyer. It is understanding what you want to achieve, preparing the business properly and considering what type of buyer is most suitable for the company and its future.

Start With Your Objectives

Before beginning a sale process, it is important to understand your own objectives.

Different business owners have very different reasons for considering a sale.

You may be planning for retirement, looking to reduce your involvement in the business, seeking investment to support future growth or simply feel the time is right to realise some of the value you have created.

Understanding these objectives will help shape the structure of any potential transaction.

It is also worth thinking about what matters beyond the headline price.

For example, you may care strongly about protecting employees, maintaining the company’s identity, supporting customers or ensuring that the management team has opportunities to develop.

These considerations can be just as important when deciding which buyer is right for your business.

Understand What Your Business Is Worth

One of the first questions most owners ask is: how much is my business worth?

There is rarely a simple answer.

Business valuations normally consider factors such as profitability, cash generation, growth prospects, recurring revenue, customer concentration, market conditions and the wider characteristics of the company.

Adjusted EBITDA is commonly used when assessing the value of established businesses, although the appropriate valuation method will depend on the company and its sector.

Having a realistic understanding of value before entering negotiations can help owners assess offers more effectively and avoid making decisions based solely on an unrealistic headline figure.

Prepare the Business for Sale

Preparation can have a significant impact on both the attractiveness of a business and the likelihood of completing a transaction successfully.

A buyer will normally want to understand the company’s financial performance, customers, employees, contracts, assets and liabilities.

Ensuring this information is accurate and readily available can make the process considerably smoother.

Owners should also consider whether there are issues that could concern a buyer.

These might include heavy reliance on the owner, concentration around a small number of customers, unclear management information, unresolved legal matters or outdated contracts.

Not every issue needs to be completely resolved before approaching buyers, but understanding them in advance puts the seller in a much stronger position.

Consider the Type of Buyer

Not all buyers are the same.

A trade buyer may already operate within your sector and see opportunities to combine businesses, reduce costs or expand geographically.

Private equity investors may focus on growth and ultimately look to sell the company again after a period of ownership.

Long-term investment groups and family-backed investors may take a different approach, focusing on continued ownership and supporting the existing business over a longer period.

Management buyouts are another possibility, where the existing management team acquires the company.

Understanding these differences is important because the identity of the buyer can influence what happens to the company after the transaction.

Price matters, but so do culture, ownership approach, funding structure and the buyer’s plans for the business.

Making Contact With Potential Buyers

Once you understand your objectives and the business is reasonably prepared, conversations with potential buyers can begin.

This can happen through a corporate finance adviser or business broker, or through direct discussions with a potential acquirer.

Confidentiality is usually important during the early stages.

Initial discussions typically involve sharing enough information for the buyer to understand the business without disclosing highly sensitive commercial information too early.

Where there is genuine interest, a confidentiality agreement will often be put in place before more detailed information is shared.

Receiving and Assessing an Offer

A buyer may then submit an indicative offer setting out the broad commercial terms on which they would be prepared to acquire the business.

It is important to look beyond the headline valuation.

An offer may include cash payable on completion, deferred consideration, earn-outs or other conditions.

The funding available to the buyer and the certainty of completing the transaction should also be considered.

An offer with a slightly higher headline value is not necessarily the better offer if a significant proportion is uncertain or dependent on future performance.

Heads of Terms and Due Diligence

Once the main commercial points have been agreed, the parties will often sign Heads of Terms.

These set out the broad principles of the transaction and provide a framework for the more detailed legal process. Some provisions, such as confidentiality or exclusivity, may be binding; their effect should be checked with your legal adviser.

The buyer will then carry out due diligence.

This typically involves reviewing areas including:

• financial information;
• tax;
• legal matters;
• employees;
• customers and suppliers;
• property;
• contracts; and
• operational matters.

Due diligence allows the buyer to confirm that the business is consistent with the information provided during negotiations.

Good preparation before this stage can significantly reduce delays.

Agreeing the Legal Documents

In a sale of company shares, the main legal document is normally a Share Purchase Agreement. A sale of business assets uses a different agreement.

This sets out exactly what is being acquired, the price being paid, how the consideration will be structured and the respective obligations of the buyer and seller.

There may also be warranties, restrictive covenants, disclosure documents and other supporting agreements.

Both parties will normally have legal advisers representing them during this stage.

The objective is to ensure the commercial agreement reached between the buyer and seller is accurately reflected in the legal documentation.

Completion and Handover

Once the legal documents are agreed and any financing conditions have been satisfied, the transaction can complete.

Ownership then transfers to the buyer and the agreed consideration is paid in accordance with the transaction documents.

What happens next will depend on the agreed transition.

Some sellers leave the business shortly after completion, while others remain involved for a period to support the management team, customers and employees.

This should ideally be discussed early in the process so both sides understand what is expected.

Your next step

Selling a business does not need to begin with a formal sale process.

For many owners, the first step is simply understanding their options.

Consider what you want to achieve, obtain a realistic view of the company’s value, prepare the business carefully and think about what type of buyer is best suited to its future.

A confidential conversation with an experienced buyer or adviser can often help clarify the different routes available before you make any commitment to sell.

Taking the time to understand those options allows you to approach the process with greater confidence and ultimately choose the outcome that is right for you, your employees and the business you have built.

This article provides general information and is not valuation, tax or legal advice. Obtain advice appropriate to your circumstances.