Business owners often spend many years building up a business with the hope that one day they will sell the business and use the funds for their retirement.
If, when the time comes to sell your business, you are going to achieve both the right exit path for you and the maximum return possible, you need to make sure that every element of the business is desirable to a potential buyer.
Here are some keys points to consider in achieving this goal:
Bespoke, well drafted documentation should be the foundation of your business. This documentation will create certainty whilst you are trade yourself amongst the owners, staff and customers. Well drafted documentation prevents mismatched expectations and avoids costly disputes. Such documentation will all be shown to a potential buyer during their due diligence process and it will provide comfort to a potential buyer that the business has been operating in a controlled and compliant manner.
Key documents would include:
- Shareholders or Partnership Agreements
- Employment contracts
- Terms and Conditions of Business
When a business is being sold, the purchaser will scrutinise every element of the business. As the seller, you will be asked to provide certain guarantees that the position of the business is as it is being portrayed. You will also need to provide copies of your records for consideration.
The process is always easier and quicker if the business has all of its records in good order.
Processes and Structure
As a business owner who one day wishes to sell, you need to make sure that the structure of the business is such that is could, with a little guidance, operate without you. There are often situations whereby the owner of the business is in essence the business, as they are so fundamental to its success, that without them it is likely to fail.
It is important that you therefore consider the roles within the business carefully and delegate well to limit this effect. You should think about the processes used in your business and spend time considering if they could be refined to improve efficiency. Good efficiency generally improves productivity and in return improves profits. Processes should be recorded and revisited over time to ensure that they continue to meet the needs of the business and regular training should be implemented with staff where appropriate.
In businesses of a reasonable size, having the correct management structure in place will also be important. A good management structure that will remain in place during and after a sale will be attractive to a purchaser as business continuity is more likely to be achieved during the process.
It is worth considering in advance how you intend to exit your business and who the potential buyer may be.
Consider whether you see yourself remaining within the business as a consultant for a period of time following the sale or whether you envisage a clean break from the business at the point of sale.
Is your business likely to be purchased by a larger company as part of their expansion plans or taken over by someone who is stepping into your shoes and running the business from within.
Is there someone suitable within the business who may wish to purchase some of the shares from you in the first instance, thus allowing you to remain involved as a joint owner with a view to one day buying you out entirely. If this is a possibility how will that be structured.
If the sale of the business is going to fund your retirement. Do you have reasonable and correct expectations as to what the sale price may be and when it will be worth that figure.
When the time is right
When the time comes to sell your business, it is important that you seek legal and accountancy advice to ensure that the process is completed correctly.
In most situations input will be needed from an accountant to ensure that you receive the correct tax advice, including whether you quality for entrepreneurs relief.
The services of a solicitor who specialise in this area will also be vital as they will handle the sales process for you, engage in detailed communications with the purchases solicitors and negotiate final terms. The will also correctly record the sale of the business in the appropriate format and effect completion.
If you are selling your business contact a member of the team at Johnson and Boon Solicitors for a no obligation initial discussion on 0151 637 2034.