Thinking of selling your business?

Two middle age business workers smiling happy and confident. Working together with smile on face hand giving high five at the office
Photo by krakenimages on Unsplash

Follow our 7 point plan!

Rule 1: Timing is everything

It’s pretty tough identifying the right time to sell your business. Sell up too soon and you might not have a chance to increase the valuation of the company or worse still, sell up too late and you might miss the boat altogether.

You might decide it is the right time to sell your business if, as your business grows and the value of it increases, the level of risk goes up and with it, the chances of failure. If you think there’s a risk that carrying on could result in a decrease in value (a common side effect of growth!), now might be a good time to bite the bullet and sell. Risk isn’t the only factor at play, though. You might be approaching retirement or you’re simply losing interest in the business – all very valid reasons to sell.

On the contrary, you might choose to wait it out. If there’s a lot of work (and growth!) left to do and you’re still passionate about it– hanging on might be the best option. Often, founders or owners wait to sell until their business reaches peak market value but that can also be risky work!

The other thing to consider is that the decision may not just be a commercial one, but an emotional one too. Selling up might mean exiting the business altogether or alternatively, you might continue working in your business in one capacity or another. If you’re giving away control, you’ll have to be ok knowing that others will be making the decisions – not you. The truth is, it can be difficult letting go of something you’ve invested all your time and energy into. It’s your ‘baby’, after all. You built it from the ground up – we get it. Ultimately though, it’s down to you to sit down and work out the pros and cons of selling up Vs not. The ball, as they say, is entirely in your court.

Rule 2: Put together a pitch-deck

Most of the biggest brands we know and love have one thing in common: an awesome deck. This is your business’ most powerful tool to secure investment. The most important piece of advice here is to tell a story. What was the problem? How did you go about solving it? What was the outcome? How does the solution solve the problem? What are the results? Yup – you guessed it. This is the standard Dragons’ Den drill and stories sell!

It’s super important that your pitch stands out. With the sheer volume of pitch-decks landing in front of investors these days, your deck will have to be pretty compelling for it to turn heads. Get creative!

Rule 3: Get a valuation

Most business owners seek the help of experts to value their company. At a very high level, beyond tangible assets, valuations may also be based on:

  • Commercial and industry expertise
  • The current market, positioning and future potential
  • The company’s performance, reputation and its competitors
  • The value of your customers
  • The team
  • Your products and roadmap
  • Legal and regulatory framework

It’s not uncommon for your business to have multiple different valuations from the experts you use. Our advice would be to contact a few valuers, which should give you a good ballpark indication of the value of your business.

Rule 4: Draw up Heads of Terms

So the deal is agreed in principle, the next step is to draw up a letter of intent or an offer letter. These are commonly referred to as Heads of Terms and are legally binding unless stated otherwise.

These terms will identify some of the core issues i.e., the intended structure of the deal, the price, the timetable etc. If the Heads of Terms aren’t binding on the parties, then you may decide not to spend too much time putting this together, but either way, getting a solicitor to draft the agreement could significantly help your negotiating position.

Rule 5: Due diligence

As part of the process, the buyer’s lawyers will request information about your business, which will need to be kept confidential. It’s likely that you’ll need a watertight NDA to help ensure everything you share with the buyer is kept under wraps. This is an essential step and often one that is missed if you’ve not instructed a lawyer before sharing information with the other side.

Expect a period of dialogue during due diligence where investigations are carried out on your business. An example of some of the questions that can arise include: Are there outstanding debts from customers? Are there any ongoing claims against your business? Do all employees have employment contracts?

A legal expert can assist to draw up a disclosure letter as part of the sales process, so that your liability to any risks is limited. Being transparent about your business risks early on in the process, avoids the risk of the buyer lodging a claim against you later on or requesting that the purchase price is reduced if things that should have been disclosed weren’t.

Rule 6: Signing the sale agreement

The buyer’s lawyers will usually send your lawyers a sale agreement. As the seller, you’ll want to ensure that you get the right legal support to ensure that the sales agreement reflects your position correctly and protects you from any claims that could arise following completion.  Your goal will be to make sure your potential liabilities are limited as much as possible from the outset.

Rule 7: Other matters to consider

If you’re selling the business’ assets Vs shares, then you’ll need to follow a formal consultation process with your employees before completion. It is typical for a business to start this process following exchange of contracts.

The timescales for selling your business can vary and just as would be the case if you were selling a house, the process can take around 8 weeks.

Think carefully about your tax obligations, also. For a limited company, it is likely that you’ll have to pay Capital Gains Tax and Corporation Tax on any profit you make from selling your business, though we do recommend you touch base with your accountant as you may be able to take advantage of tax relief schemes available on some of the gains you make upon sale.

Tend Legal, London