Deciding to sell your business

Depending on the circumstances, selling your business may be one of the easiest or toughest decisions you will ever make. There are likely to be many issues involved, possible substantial finance at stake and, with the attachment you have to the business, an extremely emotional process to run through. You may have extensive or little experience in such matters. However, whatever the situation it is imperative that the decision is one that you are sure of after having considered everything in detail.

Planning well in advance and having a clear exit strategy will benefit you throughout the transaction and, if a sale is right for you, will make the process much smoother. If the decision is not the right one or there are lingering doubts you might not prepare yourself (or indeed the business being sold) to the best of your ability. This could lead to wasted time and money and ultimately could be picked up on by potential buyers and result in them withdrawing interest.

Reasons for sale

Obviously you have to consider your current circumstances and look at the reasons why you are considering a sale. It may be that:

  • you are due to retire;
  • you have other opportunities to exploit;
  • the business needs additional capital for growth that you cannot or may not want to provide;
  • market opportunities in the particular area of business are favourable;
  • a competitor wishes to take over; or
  • there are other reasons relevant to you and/or your business.

These will naturally play a part in your final decision but whatever the position (and as mentioned above) your reasons for the sale can impact on a buyer’s decision to proceed – a clear reasoned explanation behind the sale (backed up by evidence) will be sure to make a greater impression than one that has not been given much thought.

Legal status and type of business

You may be a sole trader, partnership, limited liability partnership or limited company. The legal status will invariably impact on the decision to sell and, if a sale is the way forward, you will then need to consider the type of sale and what you actually wish to sell. The type of business that you operate can also impact on your decision – for example, business may be cyclical in nature in which case a decision to sell should take into account when the best time for the sale may be.

Objectives

Having regard to the particular circumstances, you need to look at your objectives and what you wish to achieve as a result of the sale. For example, do you want to have a “clean break” from the business or would you like to have (or be required by a buyer to have, say in circumstances where your knowledge of the business is important to continued success and you need to pass that on to the buyer) future involvement in the business even if only for a limited time, or even retain a stake in the business? Will you wish to start another business or do something else?

Whatever your objectives, ensure they are realistic and suit you in the particular circumstances. Understand your business and look not only at internal operations but also the wider picture. Take into account outside factors such as the economy, market and ability to raise finance. For example, a troubled business in a tough competitive market may not be quite so attractive to a potential buyer – both saleability and price will be affected.

Impact on you and others

Not only consider the impact that the sale will have on you but look at the potential effect it may have on others and what their reactions (adverse or not) may be. This can include staff or third parties such as suppliers, competitors, shareholders and customers. All these things (and more) should be carefully considered before making your decision.

Other exit routes

A sale of your business is not necessarily always the answer! The business may be able to be passed on or sold to employees, or indeed funding for investment may be available to avoid the need for a sale. Ensure you consider other alternatives as these may actually suit your requirements in preference to a sale.

Identifying the buyer

When considering the sale of the business, look at what type of buyer you will need to attract. Having done that, think about why that buyer would want to proceed with the purchase. Look at and identify the particular strengths of the business that will appeal to that buyer and what type of sale structure may be beneficial to both you and that buyer. As mentioned above, it may even be that you do not need to look for a third party buyer – it could be possible to sell to an existing management team eager to take it on and move the business forward.

Taxation and financial advice

Get advice at the outset on the implications of proceeding down particular routes regarding the sale and how best to structure the deal to achieve a favourable position, or at least ensure that the interests of the buyer and seller will be balanced. Changing the structure during the course of the sale will not only add time and costs and cause unnecessary delays, but also potentially deter the other party from proceeding.

Conclusions

Ultimately, it will be your decision whether to sell. The above only represents a general overview of possible factors that are taken into account during the decision making process – obviously there may be many more that influence you. What is important, however, is that you consider your options and work out which route is best for you. You will then be well prepared for the way forward.

Please note that the information in this article is not designed to provide legal or other advice or create a solicitor - client relationship. No liability is accepted for any loss caused in reliance upon its content and you should not take or refrain from taking action based upon the same.