Table of Contents
- Set your objectives
- Organise your business
- Gather advisors
- Determine a business valuation
- Attract Buyers
- Non-disclosure Agreements (NDAs) or Confidentiality Agreements
- Provide warranties to the buyer
- Negotiate and agree on covenants or agreements
- Heads of terms
- Due Diligence
- Sales Agreement
- Completing the sale
How to sell your business
Selling your business can either be a short and straightforward process or a long and complex one depending on the nature of your business and your objectives during the sale. This guide will walk you through what you need to think about when selling your business to help you achieve the outcome you’re looking for.
Selling your business checklist
Set your objectives
The first thing you need to think about when selling your business is what you want to gain from the sale and what you’re willing to give for it. As well as deciding on the price you’re aiming for, you may want to ask yourself: “What ownership do I want to retain over my intellectual property?” (for example in licensing deals); “What guarantees am I prepared to make during the transfer of ownership?” (such as working for the company for a period of time after the sale); “What restrictions on my future activities am I willing to accept to make a sale successful?” (such as non-compete clauses).
Organise your business
Ensure your contracts, assets, relationships and intellectual property are well documented.
Ensuring your business is organised and you can readily access financial or legal information is key to attracting buyers and ensuring a smooth sale. Your organisation should include clarifying business structures, the ownership of assets, any licenses or agreements and who owns intellectual property. This should be done to meet your sale objectives, and will have an impact on what you are offering in the sale and thus what you may receive in return.
Advisors may be helpful at many stages in the sale process. This may involve industry, financial or legal experts to help with anything from valuation and negotiation to matchmaking. Although you may be able to perform all of these activities, relying on expertise for the important or sensitive tasks can greatly increase your chances of a favourable outcome.
Determine a business valuation
There are multiple ways to value your business that may depend on factors like the business’ assets, intellectual property or cash flow. Depending on the nature and complexity of your business, it may be necessary to get help from a financial advisor to ensure your valuation expectations are accurate and defensible.
Finding buyers who are suitable for your business and your sale objectives is often a long and difficult task. There are many marketplaces and brokers who are able to help with this task. Alternatively you may rely on your network, competitors or advisors to find people interested in buying your business. Publicising that your business is for sale should also be considered carefully, as it may have an impact on your employees or customers.
Non-disclosure Agreements (NDAs) or Confidentiality Agreements
Any buyers will most likely need to know details about your business that are not publicly available, which may represent a risk if competitors or customers have free access to this information. As such, solicitors are often used to draft non-disclosure agreements between you and your buyer(s) in order to protect you in the event of information being leaked.
Provide warranties to the buyer
As part of the sale, buyers may ask for information that cannot be verified other than to trust your word. You may be required to provide warranties for this information, making you liable should that information be untrue. These warranties should be considered carefully; see below for more information.
Negotiate and agree on covenants or agreements
During negotiations, buyers may request you agree to certain terms during or after the sale. Such agreements may include how existing relationships, staff and contracts are handled, and depend on your specific business or industry. You may also be required to sign a restrictive covenant preventing you from competing with the business you are selling. As these documents are binding, it is recommended that you get advice from a solicitor to ensure you are protected, they can also draft and prepare any agreements you may require.
Heads of terms
Once the general outline of an agreement between a buyer and seller has taken shape, a heads of terms, or letter of intent, is created by a solicitor to outline the generally agreed terms of the sale and any agreements made throughout the negotiation. This document will indicate the intention to sell under the stated terms, pending further due diligence in the sale.
The buyer has a responsibility to manage their risk in the sale by verifying they are happy with the information provided and validate their intent to purchase your business. This phase may be long and unearth new facts which could reopen negotiations or require additional warranties or agreements to be made.
The sale agreement is a document which represents the transfer of assets and ownership of the business, formalising the sale. It will contain all warranties and agreements, and state how the exchange of assets will be completed. Signing this document solidifies the terms of the sale, so it must be considered and drafted carefully to ensure both parties are satisfied with the outcome.
Completing the sale
As per the sale agreement, completing the sale represents the final stage where the physical transfer of assets (funds), ownership of entities and any licenses occurs. There are many ways to structure these transfers in order to mitigate counterparty risk during the transfer, which may include the use of solicitors, and should be performed according to the specifications in the sale agreement.
A solicitor may be important for many steps in your business sale journey. LawHive has solicitors you can work with online, instantly who can support you, whether it be to provide advice, draft NDAs, sales agreements or any terms you may need.
Can I sell my business without a solicitor?
Selling your business without the assistance of a solicitor is certainly possible and might make sense for some small businesses and informal transactions. However as the complexity of the purchase increases, solicitors will be extremely helpful in ensuring you can meet the demands of any buyers while ensuring you are legally protected and fairly represented. A business sale will typically include many agreements, covenants and due diligence throughout the process and a solicitor will be well placed to draft these documents and advise on what your legal responsibilities are during and after the sale.
How do I sell my business to overseas buyers?
Selling your business to an overseas buyer introduces additional complexities regarding the legal jurisdiction of the sale and what agreements are expected in the sale. If the business resides in the UK, is it common to use English law and UK transaction agreements and documents. The expectations surrounding sale completion may also be different depending on where the buyer is from. Solicitors are vital in ensuring both parties are operating under the same expectations and can agree on the process of the sale.
What are liabilities and warranties in a business sale?
During the negotiation process of the business sale, the buyer will likely ask for information about the financial, legal or commercial status of the business. They will use your answers to these questions to support their purchase decision. The answers you provide is often information that buyers are not able to find out any other way, so they will have to rely on your answers and trust they are factual. In order for buyers to be protected against falsehoods, they may ask for you to provide warranties that the information you provide is true, meaning you can be held legally liable if it is not factual. It is essential that any warranties are carefully provided to manage your liabilities after the sale, and these may be provided with time limits or other legal conditions to protect you as the seller. Warranties and liabilities are a point of negotiation in business sale, and solicitors can help to advise and guide you through this process.
Should I sell my business online?
There are many ways to sell your business, whether it be to friends or family, competitors or other parties on an open marketplace. The most difficult step in selling your business is attracting buyers and ensuring that negotiations leave both buyer and seller happy with the outcome. As there are many steps to this process, many online platforms are available which help with marketing, valuations, due diligence and even completion, usually for a fee as a portion of the sale. The importance of these online services depends on the size and complexity of your business, as well as the suitability of buyers that are on these online platforms. Generally speaking, selling your business online can remove a lot of the hassle. However, it is important to ensure you take the appropriate steps to manage your liabilities in the sale, and that your sale agreement meets your objectives in the sale.
What do I need to know about the buyer?
The buyer of your business will have many questions about your business when making a purchasing decision. Likewise, you should perform some due diligence on the buyer to ensure you are financially and legally covered if the sale goes wrong. Ensuring you are not exposed to financial risks in the sale is going to be front-of-mind. You can protect against this by ensuring the terms of the sale are legally enforceable, and that any sale agreements do not leave you exposed if the buyer cannot complete any payments part-way through a sale. Managing your liabilities and warranties during the sale is also vital in managing your risk during a sale. Solicitors can provide advice and confidence to ensure you remain protected during the sale process.
Ensuring your sale is a success
There are many stages to the sales process and the approach you choose to sell your business will be unique to your industry and objectives. There is no one size fits all approach, but it is recommended to get the support of professionals for the important and difficult stages of the sale.
For all your legal service needs, LawHive has top corporate and commercial solicitors ready to help you online. Whether to produce agreements, give advice or help structure your sale, you can request any of our services and we’ll get started right away.