Luke Philpott, Corporate Partner at BHP Law, outlines the key stages business owners can expect once they’ve made the decision to sell.
For many business owners, the decision to sell doesn’t happen overnight.
It’s often the result of years, sometimes decades, of hard work, investment and commitment. Whether you’re planning for retirement, looking to realise the value you’ve built, stepping into a new venture or responding to market opportunities, deciding to sell your business is a significant milestone.
Once that decision has been made, one question naturally follows:
What happens next?
Having advised business owners across the North East on business sales, acquisitions, management buyouts and succession planning, I’ve found that whilst no two transactions are ever identical, the journey from deciding to sell to completing a deal tends to follow a recognisable path.
Understanding that path can help business owners prepare properly and avoid unnecessary surprises along the way.
Step One: Be Clear About What Success Looks Like
Many owners assume the sale price is the most important consideration.
Often, it isn’t the only one.
For some, achieving maximum value will be the priority. For others, protecting employees, preserving the culture they’ve built, securing the future of long-standing customer relationships or maintaining the business’s reputation in the local community may be just as important.
Being clear about your objectives at the outset will influence everything that follows, from the type of buyer you target to the structure of the transaction itself.
Build Your Advisory Team Early
A business sale is rarely a process that should be tackled alone.
Bringing advisers into the conversation early can make a substantial difference to both the value achieved and the smoothness of the transaction.
Typically, sellers will work alongside a solicitor, accountant and tax adviser, and in many cases a corporate finance adviser as well. Assembling a team around you, one that works and communicates well with each other is a real advantage.
Each has a distinct role. Your accountant helps present the financial story of the business. Tax advisers help ensure the proceeds are structured efficiently. Your solicitor guides you through the legal process, manages risk and helps negotiate the terms that ultimately protect your interests.
The earlier potential issues are identified, the easier and cheaper they are usually to resolve.
Prepare Your Business for Scrutiny
One of the most valuable exercises any owner can undertake before going to market is to view the business through a buyer’s eyes.
Ask yourself:
- Are key contracts signed and readily available?
- Are employment agreements up to date?
- Is the company’s intellectual property properly owned and protected?
- Are there any unresolved disputes or compliance concerns?
- Is the shareholding structure clear and fully documented?
Sooner or later, a buyer will ask these questions.
Preparing in advance not only helps avoid delays, but can also increase buyer confidence and strengthen your negotiating position.
Finding the Right Buyer
Sometimes a buyer already exists.
A competitor may have expressed interest, a supplier or investor may be considering an acquisition, or a management buyout may be an option.
Where no obvious purchaser has emerged, a corporate finance adviser can discreetly approach suitable buyers whilst maintaining confidentiality.
At this stage, the objective isn’t simply finding someone willing to buy. It’s finding a buyer whose ambitions align with your goals for the business and its future.
Agreeing Heads of Terms
Once a broad commercial agreement has been reached, the parties will usually document the key deal points in Heads of Terms.
This typically covers matters such as:
- Purchase price
- Payment structure
- Proposed timetable
- Exclusivity arrangements
- Key conditions of the deal
Although much of the document is not legally binding, it serves as an important roadmap for the transaction and helps ensure both parties are working from the same understanding.
The Stage Everyone Talks About: Due Diligence
For many sellers, due diligence is the most daunting part of the process.
In reality, it’s simply the buyer carrying out checks to verify the information they’ve been given and identify any potential risks.
Buyers and their advisers will typically review contracts, employment matters, property arrangements, financial information, regulatory compliance, intellectual property and other operational aspects of the business.
Well-organised businesses generally move through this process far more efficiently than those trying to locate documents and answer queries under pressure.
Good preparation pays dividends.
Negotiating the Legal Documents
While the headline price often attracts the attention, the finer details of the legal documentation can be just as important.
The sale agreement will usually address matters such as:
- Warranties
- Indemnities
- Deferred consideration
- Earn-out arrangements
- Restrictive covenants
- Post-completion obligations
The overall value of a deal is not simply determined by the purchase price. It’s determined by what you ultimately receive, when you receive it and the level of risk you retain after completion.
This is where experienced legal advice can make a significant difference.
How Long Does a Business Sale Take?
One of the most common questions business owners ask is how long the process will take.
The honest answer is that it depends.
For most small to medium-sized businesses, a transaction will typically take somewhere between three and nine months from serious discussions to completion.
Factors affecting the timeline often include:
- The complexity of the business
- How well prepared the seller is
- The buyer’s funding arrangements
- Issues uncovered during due diligence
- The number of parties involved in the transaction
Generally speaking, preparation is the single biggest factor within a seller’s control.
What Will It Cost?
Professional fees vary depending on the size and complexity of the deal, but they should be viewed in the context of the transaction as a whole.
The right advice can help avoid delays, identify risks, improve tax efficiency and protect deal value.
In many cases, the value added through effective preparation and negotiation significantly outweighs the professional costs incurred.
The Businesses That Sell Best Are Usually the Ones That Prepare Earliest
If there’s one piece of advice I’d give to any owner considering an exit, it’s this:
Start preparing sooner than you think you need to.
The most successful business sales rarely happen by chance. They are the result of careful planning, good preparation and having the right team around you.
Whether you’re looking to sell in six months or several years’ time, taking advice early can help put you in the strongest possible position when the right opportunity arises.
Luke Philpott is a Corporate Partner at BHP Law, advising business owners across the region and nationally on mergers and acquisitions, management buyouts, business succession planning and corporate transactions.
Whether you are in the very early stages of considering your options, or ready to discuss a potential business sale or succession plan, you can contact Luke at lukephilpott@bhplaw.co.uk or call 0800 590019.
