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Ready... Steady... Sell! - GBH Law


To sell your business you need to find a buyer who is willing to buy it and, more importantly, buy it for a price that you are happy with! Your accountants or a corporate finance adviser will be able to help if you are actively looking for buyers. Solicitors tend to become involved once a buyer has already been identified- and we would always suggest you ask a solicitor to review a heads of terms/ offer letter before you sign it.

A few key things to think about when agreeing terms with a potential buyer:

  • What price would you be willing to accept?  Most buyers will not pay all of the consideration upfront on completion, so you should consider whether you can accept a deferred payment of some of the consideration.  Lots of transactions are structured with an “earn-out” or conditional element, where part of the consideration is linked to the performance of the business after completion of the sale. Some buyers also offer shares in themselves as part consideration, instead of cash.  Depending on the plans of the larger group, this may offer an opportunity to sell the “consideration shares” at a later date for an even higher price.
  • Do you want to continue to be involved with the business for a period of time after you sell?  What is the maximum time that you are willing to continue to work for the business?  The answer to this question will depend on your motivation for selling!   If you are looking to retire then you should make it clear to the buyer that you only want to hand over for a short period after completion of the sale.  If, on the other hand, you are selling to a buyer who intends to invest in the business and grow it, you may want to stay on for an indefinite period of time.  Either way, you can expect to be asked to sign a new employment contract or consultancy agreement at completion.
  • Most share purchase agreements will contain restrictive covenants, which prevent sellers competing with the business that they are selling.  Typically, these last for 1 to 3 years after completion of the sale.  If you plan to set up another business in the future, you will need to be mindful of the length of these covenants.
  • Ideally, when do you want to complete by?  Most transactions take at least six weeks and tend to complete on the last day of a month (as it is easier to draw up accounts to a month end).  A buyer will usually ask for exclusivity period in a heads of terms or offer letter, during which you are restricted from engaging with any other potential buyers.  This should be kept fairly short to discourage a buyer from dragging their heels- two months should be adequate.  You should also consider whether you need any regulatory or bank consents, as this could impact on timing.
  • Does the buyer want to take on the property which is owned by the Company? Often we find that the freehold of a company’s offices are owned by the sellers’ pension fund and a new lease needs to be granted to the company at completion.  It can take some time to deal with pension funds, so it’s worth getting the ball rolling early on this one.

Don’t forget to also check your tax position with a tax adviser.  A deal can be structured in a thousand different ways and some will be far more advantageous to you from a tax perspective than others.

Stay tuned for our final post in this series which explains the transaction process in more detail.