Selling a business? Get your affairs in order

You may be looking to sell your business in 2023. Jack Peart from our corporate and commercial team looks at six factors to consider before taking the plunge…

Selling a business is no mean feat and certainly not a decision to be taken lightly – you may have been thinking about moving on to pastures new, perhaps retiring finally, or stepping back from your life’s work for some time, so it’s likely you will have given the idea plenty of consideration already.

Whenever you sell a business, there will be many legal and tax implications along the way, so we have put together a guide to some of the steps you will need to take to take to help with a potential sale.

Take accounting advice when selling a business

It is important to take advice from your accountant, particularly when it comes to the value of your business and when structuring a deal in such a way that is most beneficial to you.

Always get a second opinion about how much you think the business you’re selling is worth. Accountants are usually the best advisers to help with this, especially as they will have the financial information and history about your business.

Your accountant will also be able to offer advice on how to structure the sale, so that your needs are best met. This can be particularly important for a business with a considerable amount of cash in its reserves.

Companies House governance

There are several things worth checking here. Are your filings up to date, and correct? With changes at Companies House on the horizon regarding compliance with corporate governance, it is as crucial as ever to make sure filings are up to date, even if you are not looking to sell your business straight away.

Has any satisfied borrowing been removed from the company profile which could deter potential buyers, or potentially lead to them asking for a reduction in the price?

Are your persons with significant control (PSCs), those who own at least 25 per cent of the issued share capital, or a right to significant influence, up to date so that potential buyers are aware of the ownership structure of the business? All sensible checks that you will need to make.

Contracts in place for employees

It is important to understand and be clear about how selling your business will have an impact on your employees. Do you have up to date contracts in place for them? Often businesses do not have up to date contracts and in some cases, no formal written contracts at all.

Given that a key asset of any business is often its employees, buyers will want to know as much about the terms and conditions of your employees before making an offer or buying a business.

Where a sale of assets is being considered, specific regulations will mean employees will often transfer over to the buyer and again it will be important for formal contracts to be in place to help make the transition as smooth as possible.

Gathering your information together

You will need to prepare an overview of the business ready for an information request that will come from the buyer. Where the buyer and seller are not known to each other, or have limited knowledge of one another, the buyer will often want to undertake a snapshot view of the business to find out as much information as possible.

Accounting, tax, financial, suppliers, customers, assets, and employee information, among other items, are normally always requested by the buyer and preparing these documents in advance for circulation will help during the negotiation stage.

Confidentiality agreements

Preparing a confidentiality agreement restricting any interested parties from being able to use or act on any initial information provided during the sale of a business, can be particularly important depending on the business being sold.

To make sure that sensitive client lists, financial information, and technological know-how are kept by you in the event of a sale falling through, we always advise anyone selling a business to have a confidentiality agreement in place.

But do beware, the buyer will often ask for a period of exclusivity to complete negotiations during a sale and fend off any further competition for the business.

Head of terms

Once a potential buyer has been found, even if you’ve not taken the steps already outlined above, it is advisable to have a set of heads of terms produced giving details of the key terms of the proposed transaction.

Heads of terms will often set out payment terms and timings, a list of what is and is not included within the sale and post-completion requirements, such as consultancy or ongoing involvement by those selling the business.

More help and advice

Whenever and however you sell your business, we are here to help. There is no getting away from the fact that selling your business can be incredibly stressful, there will be a lot to think about and many decisions to make. We can help to take the stress out of selling your business.

Coodes’ corporate and commercial team of expert lawyers have years of experience and knowledge helping our clients to buy, sell or transfer their businesses. We act for businesses of all sizes including sole traders, partnerships, limited companies, and LLPs with advice on all contract and commercial transactions.

No matter what stage you are at in selling your business, our team will be more than happy to help. Contact us using the online form or call us on 0800 328 3282.