Preparing a Business for Sale
In the second part of this Step by Step Guide to Selling a Business we consider the steps you should take before marketing your business for sale or discussing the sale with any potentially interested party. The first step will be to consult with your accountant (if you can do this well ahead of the time you intend to sell, all the better); you will need guidance from your accountant on:
- The best way to structure the sale for tax purposes. For example, if the business is operated through a limited company consider whether to sell the assets of the business or the company shares each of which has different tax consequences.
- How to value the business. This is not necessarily straight forward as there are differing formulas and you will need to be advised. For example, the sale price could be based on a multiplier of profits or by reference to turnover or the price might be dictated by the value of the assets.
Ideally you would sell the business with a track record of healthy profits and the business currently in growth. If this is not the case, and the valuation of the business does not represent what you feel is the true value, but you have laid the ground work for improved future earnings, you might agree to structure the sale so as to give the buyer added value.
For instance, you could agree that part of the sale price would be pegged to future earnings so that you receive a lump sum on completion of the sale and an additional sum at a later date (say after a 1 or 2 year period) calculated as a percentage of future earnings.
However, be careful. Agreeing to receive part of the purchase price at a later date is not ideal. Who knows how well the buyer will operate the business or whether future disputes could arise between you and the buyer which complicate getting the price uplift you were expecting.
You do need to get advice early: in the first instance from your accountant. Then speak to a commercial solicitor who deals with business sales – if only to sound him or her out as to whether you would feel happy working with them and to get a fee quote. We are happy to give free initial, no obligation advice about selling a business and to discuss fees, please feel free to call or contact us by e mail.