Needless to say there will always be a number of factors to consider in making the decision to sell a business, including whether to go it alone or instruct a professional company to assist you. Adrian Ward, director with AMS Business Sales, offers his advice on the main points to consider

Why might you consider selling your business

• You might have received a tempting offer.
• Your fellow shareholders may be keen to realise their investment.
• There may be no obvious succession within the family or company.
• Perhaps you want to realise some capital for investment or retirement.
• The next stage of growth for your business may require additional capital.
• Running the business is simply less challenging or rewarding than it used to be.

The sale process is demanding, so it is important to understand and agree your motivations from the outset before the process commences. Whatever your reason for deciding to sell, probably the most important objective is to achieve the highest price for your business, protect your employees and ensure the business survives and prospers after sale. Most business owners see the sale of their company as the ultimate reward for the risk they have taken and the effort that they have put in to the business over the years; it is their pension nest egg.

Is now the right time to sell?

• You might think twice about selling if the income your business will generate is less than you require.
• Is there a ready market for business sales for your type of business? Some business sectors are hot, and some are decidedly chilly.

Although general economic conditions should influence your decision, the stage of development of your business and the dynamics within your industry sector are likely to be even more important factors.

There is always a market for a quality company or business; it just depends at what price!

Here are some key issues to consider assuming it is a suitable time to sell and the market conditions are good.

Capital Gains Tax
The taper relief regime means you may pay an effective 10% on your capital gain on the disposal of qualifying business assets after just two years of ownership. There are a number of exceptions from this and your Accountant and advisors will assist you.

Timescales
Bear in mind that a typical sale process will take 9 to 24 months to complete with the legal part of the sale taking around twelve weeks.

Appointing advisers
Whilst it is not always necessary to appoint an adviser until the decision to sell your business is made, it is sensible to meet with potential advisers prior to making this decision. This will allow you the opportunity to assess potential advisers’ capabilities; explore the range of options available, and receive an independent view on the potential value of the business for sale.

Once the decision to dispose is made, it is important to appoint a professional adviser to help prepare for the sale process. Legal advisers should also be appointed at an early stage and other advisers such as property, environmental, pensions and tax advisers should be considered, as appropriate. In general, professional advisers would prefer to be involved in the process earlier rather than later; and since the bulk of their fee will be success-related, this is something vendors should take advantage of.

Quality brokers and specialist in mergers & acquisitions will provide a range of services:

• Grooming the business for sale
• Assessing the tax implications on the disposal
• Drafting an information memorandum
• Targeting buyers
• Managing the deal through due diligence
• Driving the deal to completion

The deal is agreed. What happens next?
The deal is agreed; hands have been shaken and you want your money. Unfortunately, it is not quite as simple as that. Now the solicitors and accountants become involved and the contracts have to be drawn up.

Your most important decision now is the choice of solicitor; they will make a dramatic difference to the smoothness and speed of a successful completion.

The solicitors you choose should specialise in commercial deals. The correct choice is vital. An inexperienced solicitor can take five months to complete a deal when the expected time should have been around two months. Most share sale deals should complete within eight to 12 weeks.

Pre-sale planning and housekeeping
If you were selling your home,you would tidy up and mow the lawn, etc, to create a good impression to potential purchasers. The same approach should apply to your business. Many sales fall through, or the price initially agreed is reduced, as a result of a business being in a poor condition when the purchaser carries out due diligence.

A bit of planning and organisation pre-sale can speed up the sale process and give the right impression. Any Essential DIY or maintenance should already be carried out. Sort out any issues that could impact adversely such as litigation, staff disputes, old bank charges, leases in the wrong name etc.

Deals going wrong!
If you are using a broker to sell your business you should draw on their experience. They will act as a go-between with the solicitors, accountants, purchaser, and you the vendor. Your broker will project manage the deal every step through to completion. It is very easy to get sidetracked on minor issues and forget that the purpose of the process is to sell a business and be paid for it.

If you are aware of any issues that will affect the purchaser’s desire to proceed you must tell your advisors’they need to be your first call if there are any problems. Even so, there always tends to be one or two deal breakers in a sale and it is your broker’s role advisors to help with these.

Typical deal breakers are:

• Not providing full disclosure of issues
• Inexperienced / non commercial / slow advisers
• Slow production of information / poor information
• Staff leaving; tribunals; salary increases prior to sale
• No lease, a long lease, personal guarantees on a lease
• Removing cash and dividends from the business pre - completion
• The vendor and purchaser getting too friendly and losing objectivity
• Altering the structure of the deal / not being prepared to alter the structure
• The parties or their advisers becoming entrenched in a “points scoring” battle
• Poor management accounts; not being able to establish the balance sheet value

It is important to be objective throughout the sale, Try and place yourself in the purchaser’s shoes and ask yourself if their requests reasonable. Would you not want to know everything about a business before you bought it?

Preparation of Heads of Terms
This is a simple document that outlines the main points of the deal agreed between the vendor and purchaser. This will normally detail:

• The type of sale and identify each party and what is being sold
• The price or consideration paid and the date of payment.
• Any retentions or deferred payments.
• If the vendor is to remain in the company and their future roll.
• Lease details.
• Timescale for completion.

Heads of Terms and the deal itself are subject to due diligence. They are used as a guide in the preparation of the Sale and Purchase agreement. Heads of Terms are not usually legally binding, although certain promises can be.

Exclusivity Agreements
The vendor and purchaser will normally enter into an exclusivity period in which to negotiate the transaction.

Due diligence
In due diligence the solicitors will check the title to assets and the accountants will check the books and records. Due diligence is one of the most important areas of the transaction; will create the most work for the vendor and therefore the most stress. The due diligence process is an in-depth investigation into the vendor’s business so that the purchaser is fully aware of what they are buying and; in rare cases, the outcome in due diligence may affect the decision whether to proceed with the transaction.

With share acquisitions, this process will be very in-depth as the purchaser will inherit all the liabilities of the company and this will therefore influence the amount / variety of warranties required. It is important to maintain good records of what is provided to the purchaser so that this can be provided to your solicitor who will include the information in the disclosure letter. It is in the vendor’s best interest to provide answers to the due diligence questions to assist with the transaction.

It should be noted that the continued request for information does become frustrating / annoying, and the urge to say “THE DEALS OFF!!” can be very strong.

Purchaser information
Below is a common list of information requests that purchasers require to formulate their due diligence report together with their sale and purchase agreement. The information provided can be used in conjunction with the disclosure letter.

You must keep copy of any information supplied to the Purchaser and list of each item. This is then provided to the solicitor to assist them in drafting the sale and purchase contract and Disclosure letter.

Some of this information may not be needed immediately, but if the collation process is started early in the transaction it will speed up the sale process and reduce the stress at a later stage.

1. Staff
Make the purchaser aware of any staff issues, as these will be included in your Disclosure letter.
Provide an employee list, which includes job title; staff name; age; length of service; salary and holiday entitlement. Questions will be asked about how the holiday pay is accrued and where it is shown in the accounts.

• Employee contract/contracts and variations between staff
• List of any dismissed employees in the last six months
• Are there any employment claims; previous, present or possible?
• Any staff changes need to be notified to your solicitor

2. Property
Leases are one of the most common reasons that completion is delayed in a sale. The landlord and their solicitors have no interest in the sale completing; they are just protecting their own corner, so full disclosure on the lease and the landlord is essential, as early in the sale process as possible.

3. Accounts
Year-end and management accounts will be required at due diligence and completion. If you do not produce management accounts; your accountant should begin preparing them as soon as the heads of terms are agreed, as these will be required at due diligence. This will also assist the valuation of the balance sheet.

4. Finance

• Turnover, costs of sales, debtor and creditor list
• VAT returns, PAYE details
• Details of any mortgages, charges, loans, personal guarantees and debentures
• Hire Purchase agreements
• Details of dividends paid out over the last year, how much and when
• Bank details and a recent bank statement
• On the day of completion a final bank statement will be required

5. Additional Information
Pension scheme details, computer licences, copy of leases held, Limited Company information, statutory books, Memorandum & Articles of Association, insurance for the company, property and public, details of any disputes, asset list, Inland Revenue details, intellectual property details ‘ if applicable, Any trade agreements with suppliers or customers and copies of customer contracts.