Disposals
Before deciding to sell your business we set out below the many stages to this process which will be time consuming, protracted and disruptive to the business.
Get your business into good order: Are the accounting records up to date? Will they stand an in-depth review by a third party? Is meaningful financial information on the performance of the business produced on a regular basis? Try and resolve disputes with customers & suppliers. If the business is not "clean" any plans to sell should be postponed until it can stand external scrutiny.
Identify potential purchasers: Although a management buyout may be a possibility the raising of funds for this process both from the management and external providers may be difficult in the current economic climate. A successful trade competitor will already have the track record to support an acquisition. As much information as possible about potential purchasers needs to be gathered: market, financial, management etc. Select no more than two / three possible targets. A scatter gun approach is not recommended.
Prepare a prospectus: A prospectus profiling the business will need to be prepared to encompass such matters as the management (current and post acquisition), customers (activity levels for the last five years) product profitability and sales, financial information (trading and balance sheets) for the last five years, major items of plant, on-going contracts and any other relevant information about the business. An indicative valuation will be included. This profile will be very useful to a competitor and although confidentiality letters will be signed in reality they provide very limited protection.
Find a buyer: The initial approach to a prospective purchaser will only provide a general outline of the business with the objective of masking the seller. If it is judged that the interest is serious a confidentiality letter will be signed and a copy of the prospectus supplied. If interest is maintained it will result in an initial meeting between the parties. If this is successful an indicative offer for the business will be negotiated and if acceptable a heads of agreement signed by both parties. Whilst this document will not be enforceable in law it should represent the outline of the final agreement between the parties.
Due Diligence: Whilst it may have been possible to conceal matters from the staff up to this stage (although the preparation of the prospectus will be difficult without internal assistance) the purchaser will now want to be satisfied as to the accuracy of the information contained in the prospectus and will therefore appoint a team of advisers (usually accountants) to prepare a report on the business. Their presence will soon become known throughout the company. If a sale of goodwill (essentially the customer base) is intended the due diligence will not be unduly onerous. A sale of shares or the assets and liabilities of the business will require an in depth investigation into all aspects of the business since the buyer will rely on it. If the business is not seen to be in good order the acquisition will not proceed.
Contract negotiations: We will up to this stage have avoided the use of other advisers unless there is tax planning issues to be addressed. We will require the purchaser to prepare the contract for sale and will only release this to your solicitor when satisfied that it is an acceptable reflection of the intentions of both parties. Once engaged your solicitor will act under our control and guidance.
Completion: This may be done by a simple exchange of signed documents or a completion meeting of varying duration.
The above only sets out the stages leading to a successful disposal of a business. There are other matters to be considered such as:
Disruption:
the process is disruptive whilst at the same time the business must continue to be successfully operated.
Time scales: there are no set timescales. Very unlikely to be completed in six months unless it is a distress sale. More likely to be a minimum of 12 months.
Consideration: in our experience the purchaser will want to pay an initial sum on completion with the balance paid by way of an earn-out - say over three years. These arrangements are fraught with difficulties since the vendor has to maximise profits after losing control of the business whilst also being subject to a new control regime.
Our role and fees
We will manage the whole process set out above. The vendor will be kept fully informed but with involvement kept to a minimum to minimise disruption to the business. In our experience face to face negotiations with the vendor present are to be avoided since this can result in premature decisions which may then need amendment after further reflection.
We will quote a fee (plus out of pocket expenses) for our work up to and including the preparation of the prospectus. Subsequently it will be - no sale no fee. If we have misjudged the sales potential of the business that is our responsibility not the vendors.