For someone to make the decision to sell their business, they will have had to put in some careful thought as it is one of the biggest decisions a business owner will ever have to make and they will want to make sure that they get the most out of the sale as possible.
By the same token, buying a business requires just as much care and thought so as to avoid inadvertently buying unknown liabilities and to ensure that you have the best possible chance of success with your new business.
This article is intended to give a brief outline of the overall structure involved in selling or acquiring a business.
Here is the basic order of processes involved in a sale/acquisition of a business:
Both buyer and seller instruct advisers.
The next step is both buyer and seller agreeing on a Heads of Terms and Confidentiality Agreement.
Due diligence enquiries are then carried out by the buyer which the seller is obliged to respond to.
The buyer is then required to draw up an acquisition agreement, and the seller, a disclosure letter.
Both parties will then meet up and agree (or compromise until an agreement can be made) on their acquisition agreement and disclosure letter and exchange copies of each.
Now the actual implementation of the change of ownership can take place, followed by any previously agreed post-sale actions.
The main documents involved may include:
Heads of Terms;
Confidentiality Agreement;
Due Diligence Enquiries
Acquisition Agreement (of shares or assets as appropriate) and Deed of Indemnity (share purchase only)
Disclosure Letter;
Service Contracts
SHARES v ASSETS
Basically, if a company is purchased, all of its assets and liabilities, both known and unknown, will go with it and the buyer will acquire them all.
However with an asset purchase, the buyer only acquires the assets and/or liabilities he has agreed to.
In both cases the employees will retain rights of employment. This is often a difficult area and needs to be approached carefully.
Conclusion:
Buying and selling a business is a specialist area so it’s worth thinking about consulting with one-off advisers to help you get the most out of the transaction. The main advisers you will need will be an accountant, a law firm that specialises in these kinds of transactions and maybe a corporate financial adviser.
A good starting point is to seek your accountant’s advice on a value for the business. Although valuing private companies can be a complex process, it is always better to have a realistic price in mind before you embark on a sale or purchase process.
5 Top Tips:
1. Do as much preparation as possible;
2. Pay attention to the Heads of Terms;
3. Deal with due diligence enquiries/replies promptly;
4. Use your advisers well;
5. Don’t forget the price.
If you are thinking about undergoing the process of a business sale, you could do a lot worse than seek advice from a professional, specialist law firm such as Tolhurst Fisher. They are a firm of solicitors Essex and specialise in areas of law such as buying and selling businesses. Click on solicitors Essex