Jennifer Sim
- Associate
Insights | Corporate Law
Get prepared to sell your business
16 December 2024
Selling a business is a major decision that requires careful planning and a methodical approach. Whether you’re considering stepping away from your business or looking to capitalise on its value, the process involves several crucial steps that must be followed to ensure a smooth, successful sale. Below, we have outlined some key steps to selling your business.
Prepare early and be organised
The foundation of a successful business sale is thorough preparation. Prospective sellers should organise their financial records, tax returns, legal documents and ensure all business operations are in good order. You might also want to consider how attractive your business appears from a buyer’s perspective. To attract potential buyers/investors, you may want to address any operational inefficiencies, clean up your financial records and ensure that you comply with any legal or regulatory frameworks, where applicable. A well-organised business will not only make the sale process smoother but will also increase your chances of attracting serious buyers.
Review your company structure and the proposed deal structure
Before listing your business for sale, it’s vital to assess your company’s structure. For example, is it a sole tradership, partnership or limited company? Each type of structure can have significant tax implications for both the seller and the buyer.
Additionally, you must think about how the deal itself will be structured. Will it be an asset sale, where specific assets (such as equipment, property or intellectual property) are transferred? Or will it be a share sale, where the entire company, including its liabilities, is sold? This decision will impact tax liabilities and potential risks for both parties, so we recommend seeking professional advice on this.
Valuation and completion mechanics: Get professional advice
Proper valuation of your business is essential. To set a realistic price, you will need a comprehensive valuation that considers tangible/intangible assets, goodwill, and any contracts or customer relationships.
Once a valuation has been determined, you will also need to think about the completion mechanics. This can vary widely depending on the buyer’s preferences and your own financial goals. Common options include lump-sum payments, instalments or earn-outs (where payment is contingent on future business performance). Additionally, tax considerations will play a significant role in determining the final structure. Therefore, working with accountants, tax advisors and legal professionals is critical to structuring the deal in a way that maximises value and minimises tax liabilities.
Assemble a Deal Team
Selling a business involves many complexities, making it essential to assemble a skilled team that typically
includes:
- Lawyers: To draft, review and advise on the legal documents, including the main purchase agreement, as well as (in Anderson Strathern’s case) assist with marketing the business for sale and finding the right buyers.
- Accountants: Who will be able to assist with the financial planning, valuations and tax considerations.
It’s equally important to conduct your own due diligence before entering negotiations. This means scrutinising your business for potential risks or liabilities that could be discovered during the buyer’s due diligence process. By identifying and addressing any issues upfront, you can avoid unpleasant surprises later on.
You should also maintain strict confidentiality throughout the sale process. Leaking information about the sale can disrupt business operations, harm employee morale, and attract unwanted attention from competitors. Therefore, you may want to consider putting in place non-disclosure agreements (NDAs) before sharing sensitive information with potential buyers.
Agree a Letter of Intent/Heads of Terms
Once you’ve found a serious buyer and reached the final stages of negotiations, you’ll want to formalise the terms with a Letter of Intent/Heads of Terms. This document outlines the key terms of the deal, such as the purchase price, payment structure, and any conditions that need to be met before the deal is finalised.
While these are typically non-binding, they serve as an important step towards formalising the deal and moving forward towards a final agreement. It also provides both parties with clarity on their intentions, which can help prevent misunderstandings and ensure that both sides are aligned to ultimately save costs in legal negotiations.
Next steps
Selling your business in Shetland is a significant undertaking that requires thoughtful preparation, the right advisors and a strategic approach. By taking the time to consider the above steps, you can help prepare for a successful sale.
Here at Anderson Strathern LLP, we are committed to guiding you through the complex process of selling your business and our experienced team of commercial lawyers (including specialists in tax, property, employment, banking, pensions, IP/IT) will support you through every stage. We can also assist with marketing your business.
If you’re preparing to sell your business and would like expert legal support, please contact us at lerwick@andersonstrathern.co.uk or call 01595 695 262 to arrange a consultation in our Lerwick office.
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