Whether you like it or not, we all have to retire at some point and give up the business we have worked so hard to establish and grow during our working life time. Some people have children who will take the business over, but some people don’t have children or do have children who have no interest in the family business. In these circumstances there are tw options. The first one is winding the business up to a close and the second is selling the business.
If you want to maximise the value of your business winding it up is not a viable option as you will get much more for your business if you sold it as a going concern.
How to sell a business - documentation
When you sell a business you are going to have to produce lot of documentation, and this is before all the various legal contracts and the Information Memorandum is, arguably, the most important in the first instance.
The information memorandum is the sales prospectus used to entice potential buyers to purchase the business. The information memorandum is a document that provides a lot of information about the business such as the location, the structure, the market, the customers, the suppliers and the financials etc. etc. This is pretty sensitive information and the distribution has to be tightly controlled throughout the transaction.
The information memorandum is an important document and on that is often over looked and the quality of the information memorandum can be the difference in getting some interest and not getting some interest. Because of this it is important the information memorandum is not rushed.
How to sell a business - Marketing the business
Once the documentation is all sorted out the first thing you have to do is market the business and let people know there is a business opportunity available. Some industries have their own trade magazines and journals with a classified section with businesses for sale and some industries have business transfer agents who specialize in selling businesses in that industry. If your business is in one of the industries using a business transfer agent or advertising in some of the journals is a good place to start.
If there is no such journal or specialized business transfer agent in your industry the only options are to market the business yourself or use a “general business” transfer agent who does not specialize in selling businesses in any particular industries.
How to sell a business - Finding potential buyers
It doesn’t matter whether you market your business yourself or whether you use a business transfer agent you are going to have to spend some of your time and efforts finding potential buyers yourself. When you sell your business you could take a reactive approach and wait for potential buyer to come to you, and providing you have used sound marketing methods you should get some interest. Alternatively, you can take a proactive approach and go and seek out potential buyers.
Many people appear to assume finding potential buyers is difficult however this is not the case. Arguably, the best place to look for potential buyers is to look at your competitors. That’s right, those local businesses you have been fighting with for market share over the last umpteen years are the best place to start.
How to sell a business - choosing a legal team
Selling a business is going to involve a lot of legal contracts and a good legal team is essential. A firm of solicitors who does not specialise in selling and buying businesses is likely to miss things, which could prove very costly in the future, therefore you need to think carefully about what firm of solicitors you are going to use.
Some corporate solicitors have a large team dedicated to buying and selling businesses, who usually deals with very complex transactions and large businesses. Using one of these firms for a simple transaction and selling a small business is a bit of an over kill and is going to end up costing a lot of money. Engaging one of these large firms is unnecessary and you will wind up paying out a large proportion of the sales proceeds as legal fees.
The best bet is to find a smaller firm of solicitors who have had experience in buying and selling businesses as you will get comfort they will cover all matters and not charge the earth for doing so.
When choosing a legal team go and see a few firms and get some quotes. Make enquiries to ensure they have bought and sold businesses and ask for specific examples. Always see a few firms of solicitors and never sign them up on the spot. Take their quote home with you and carefully think about it.
How to sell a business - Conclusion
When selling a business you should never be in a rush. After all, you have spent a lot of years building up your business, you have put in a lot of hard work and effort and you have sweated blood and tears in the process. Now is the time to capitalise on all that work and you want to make sure you get the most out of the deal and not have to pay out more than you need to.
The things to focus on when selling a business are preparing the documentation, marketing the business, finding potential buyers and choosing the right legal team. If you get these things right the transaction should go as smoothly as possible and the costs won’t be disproportionate the sales proceeds. Get these things wrong, however, and you may end up selling your business at a loss.