The decision to sell a business is one of the biggest decisions a business owner will ever make. Once the owners have put in the years building up a business from scratch, they will want to make absolutely sure that they get the most they can out of selling it.

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.

The intention of this article is to give an outline of the structure of the processes involved in a sale or an acquisition.

The basic format for the sale of a business is:

The buyer and the seller instruct their advisers as to what exactly they are looking for from the sale.

The next step is both buyer and seller agreeing on a Heads of Terms and Confidentiality Agreement.

The buyer can then make whatever enquiries he likes, these are known as due diligence enquiries, and the seller is obliged to reply.

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.

There are usually several documents involved in the sale of a business and they will usually 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 and Assets:

If a company is purchased, all of that company’s liabilities and assets, whether the buyer knows about them or not, will be handed over in the sale.

On an asset purchase, the buyer will only take on the assets & liabilities he specifically agrees to purchase.

Either way, employees will retain rights of employment.

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.

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 considering selling your business or buying another business, you should seek advice from a professional, specialist law firm such as Tolhurst Fisher. They are a firm of corporate solicitors Chelmsford and specialise in areas of law such as buying and selling businesses. Click on corporate solicitors Chelmsford