As Tilly Bailey & Irvine’s commercial solicitors in Teesside explain, the sale of a business means different things to different people.
For some it means moving onto the next challenge, for others it may mean retirement.
No matter what the sale of a business means to you, many of the main points to consider will ultimately be the same.
1 – What next?
The buyer of your business will want to prevent you from competing with them for a number of years. If your plans involve setting up again in the near future then you need to consider this and negotiate the length of any restrictions. Even if you are planning to retire, business owners often get bored of retirement quickly and want to get back into business. It can therefore be sensible to negotiate these provisions (just in case).
2 – How are you getting paid?
Most business sales will have a payment structure that means only a portion of the purchase price is paid on the day of sale, with the rest “deferred” and paid over a period of years. The risk to a seller is that these deferred payments are not paid, like any other unsecured debt. Consider negotiating more cash up front, securing against an asset or obtaining a personal guarantee.
3 – Can you work for someone else?
There are many deals that involve owners of businesses selling to larger organisations to get value for their shareholding but remaining within the business as management. This often sounds like a good deal from a financial perspective but many sellers soon realise that they struggle no longer being their own boss. This does not mean a deal of this nature cannot go ahead, but it leads back to sellers looking at point 1 and thinking about what you need to agree in order to give you the freedom to move on if needs be.
4 – How well do you know your business?
If you are selling the shares in a limited company then a buyer is not only acquiring the trading business it runs today, it is buying its entire history. Therefore, a buyer will want to thoroughly investigate the business and also look for contractual protection (usually in the form of warranties). A seller needs to be ready to provide all of this information and then properly negotiate the warranties to minimise its exposure. There are also numerous “protection” provisions that lawyers acting for sellers should ensure are included to shield you from liability as much as possible.
5 – How much do you want to take home?
The difference between the sale price in a contract and the money transferred to your bank account will often be significant. Many sellers forget about the impact of matters such as tax and professional fees. It is important to consult accountants, specialist lawyers and your IFA at an early stage in order to establish an estimate as to the costs involved and the likely tax position. This allows you to set a budget and decide on a sale price you are happy with before agreeing the deal with the buyer.