Luke Philpott, Corporate Partner at BHP Law, explains what business owners can expect once they've made the decision to sell.
Making the decision to sell your business is often one of the biggest decisions you’ll make in your professional life.
For some, it’s the culmination of years of hard work. For others, it’s about taking advantage of a market opportunity, stepping away from the pressures of ownership, or planning for retirement.
Whatever the motivation, one question usually follows:
What happens next?
Having advised business owners across the North East on business sales, acquisitions and management buyouts, I’ve found that while every transaction is different, the process follows a broadly similar path.
Start with your objectives
Before focusing on buyers, valuations or paperwork, it’s important to establish what you’re trying to achieve.
For some owners, maximising value is the priority. For others, protecting employees, preserving a legacy or ensuring continuity for customers may be equally important.
The answers will often influence the route taken, whether that’s a trade sale, management buyout, merger or another form of succession.
Understanding your objectives at the outset helps shape every decision that follows.
Assemble the right team
Selling a business is rarely something an owner should tackle alone.
A successful transaction will typically involve a solicitor, accountant and tax adviser, and in many cases a corporate finance adviser or broker.
Each plays a different role. Your accountant helps present the financial story of the business, while your solicitor helps structure the deal, manage risk and navigate the legal process.
The earlier advisers are involved, the more opportunity there is to address issues before they become obstacles.
Get your house in order
One of the most valuable exercises before approaching buyers is reviewing your business through a buyer’s eyes. Are key contracts signed and up to date? Is intellectual property properly owned by the business? Are employment contracts in place? Is the shareholding structure clear?
Buyers will investigate these issues during due diligence, so identifying and addressing any weaknesses early can save time, reduce risk and help protect value.
Finding a buyer
In some cases, a buyer is already known. Perhaps a competitor has expressed an interest, or members of the management team are exploring a buyout.
Where that isn’t the case, a corporate finance adviser can help identify and approach potential purchasers discreetly and confidentially.
At this stage, conversations are focused on whether there is strategic and commercial alignment before moving into detailed negotiations.
Heads of terms
Once broad commercial agreement has been reached, the parties will usually enter into Heads of Terms.
This document sets out the key principles of the deal, including the proposed price, structure and timetable.
Although not usually legally binding in full, it provides an important roadmap for the transaction and helps ensure both parties are working towards the same objectives.
Due diligence
This is often the stage owners worry about most.
In reality, due diligence is simply the buyer verifying the information they’ve been given and assessing any risks associated with the acquisition.
Legal, financial and commercial information is reviewed in detail, and questions are asked about everything from contracts and property to financial performance and compliance matters.
A well-prepared business will generally move through this stage much more smoothly than one that is trying to locate documents and resolve issues under pressure.
Negotiating the deal
The sale agreement is where the detail sits.
Alongside the purchase price, negotiations may cover warranties, indemnities, deferred payments, earn-outs and any ongoing obligations after completion.
This is why it is important not to focus solely on the headline figure.
The legal terms of the deal can have a significant impact on what you ultimately receive and the level of risk you retain after completion.
How long does it take?
One of the most common questions I am asked is how long the process will take.
While every transaction is different, a typical business sale often takes between three and nine months from serious discussions to completion.
The timescale will depend on the complexity of the business, the preparedness of the seller, the funding arrangements and the issues identified during due diligence.
Generally speaking, the better prepared the business, the smoother and faster the process.
And what will it cost?
Professional fees vary depending on the size and complexity of the transaction, but they should be viewed as an investment rather than a cost. The right advice can help identify risks, avoid delays, protect value and improve outcomes.
In many cases, good preparation and expert support can add significantly more value to a transaction than they cost.
Preparation is everything
If there’s one message I would leave business owners with, it’s this:
The best sales rarely happen by accident. They are built on preparation.
Once you’ve made the decision to sell, surround yourself with the right advisers, understand your objectives and start preparing early.
Because when the right buyer arrives, you’ll want to be ready.
Luke Philpott is a Corporate Partner at BHP Law, advising business owners across the North East on mergers and acquisitions, management buyouts, succession planning and corporate transactions.
You can contact Luke via lukephilpott@bhplaw.co.uk