How your business works, details of your customer base, order book, contacts, sales figures – any or all of these are the lifeblood of your business. Whether at the initial stages of trying to sell, or at the point of agreeing terms of sale, be guarded about information you disclose and ensure you have a confidentiality agreement in place before such discussions take place.
Even with an agreement in place you should not give the buyer full information when agreeing terms for sale of your business – for example, divulging your customer list – this will be dealt with at the appropriate time in consultation with your solicitor.
Once you have agreed terms of sale these should be set out in a heads of terms document (or memorandum of understanding/letter of intent). Heads of terms are mostly non binding but are very useful in focusing all parties (seller, buyer, lawyers, accountants), bringing clarity to your intentions and putting a moral obligation on the buyer not to shift, at a later date, from what was agreed and documented.
It is interesting that the process of agreeing heads is in itself a useful exercise forcing parties to consider key issues thus minimising aggravation and bad feeling later on which can even result in the sale falling through.
What are heads of terms? Typically heads will detail:
- price agreed
- how the purchase price is to be paid (see next blog)
- target completion date
- whether warranties and indemnities are to be full or limited (more about this in a later blog)
- assets being purchased together with any liabilities being assumed
- exclusivity terms (if applicable): you may agree that you will not pursue negotiations with any other interested party for a limited period of time, say 6-8 weeks. This gives the buyer an incentive to complete on time
- whether a party’s costs are to be paid if the other party withdraws from the sale.
Care should be taken that the heads are an outline of the deal and not a negotiation of the detail which will be in the sale documents dealt with by the solicitors. Once heads are agreed get your solicitor to start work as soon as possible so that you keep the momentum going and the buyer keen.
Get legal advice before you start discussions with interested parties.
We are happy to give free, initial advice including advice on a heads of terms. We can provide a competitive fixed fee for a confidentiality agreement and will waive this fee if you decide to instruct us.
Please feel free to call: no obligation, no pressure, we are happy to talk.