An entrepreneur's guide to selling a business - Boodle Hatfield

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Why would someone want to buy my business?

How many of the following apply to my business?

  • We have strong growth prospects
  • We operate in a valuable niche sector
  • We sell premium goods/services
  • We have developed proprietary technology and know-how
  • Our business model is scalable in the right hands
  • We have sustainable profit margins (which could grow in the right hands)
  • We have impressive and motivated second tier management
  • The business does not just rely on me
  • We have talent in the areas that matter most to the business (e.g. R&D, sector know-how, business development, client fulfilment, sales)
  • We have a strong reputation and high profile within our sector
  • We have a good spread of quality, growing clients
  • We have a good record of generating new business from good, scalable clients

What would put someone off buying my business?

How many of the following apply to my business?

  • We are over-reliant on small number of mature clients
  • We spend too little time winning and developing new clients
  • Our revenues and profit margins have levelled off or fallen
  • There are low barriers to entry into our market
  • We commonly win new business by undercutting our competitors
  • Too much of the business revolves around me, my contacts and my business development skills
  • Our business isn’t particularly niche or innovative
  • Our market isn’t growing much
  • My star employees have little incentive to stay with the business
  • My financial information is limited in its depth and scope

Who might want to buy my business?

  • The competitor? Some looking for a complementary fit with another player in the sector
  • The consolidator? Our market is consolidating and we could add value to
  • The buy and build player? We could be a useful bolt-on for a business looking to expand into our market
  • The overseas buyer? We could be a good strategic fit for an overseas buyer
  • Private equity? Our growth prospects and market position could attract private equity (or even support an AIM IPO)
  • The management team? Our strong and ambitious management team might be able to find backing for a buy out

What does my financial data look like?

The first thing any potential buyer will do is scrutinise your financial information.

  • Do I have good quality financial information prepared to the right level of detail?
  • How reliable and detailed are my monthly management accounts?
  • What are our business KPIs? Does my financial information record and measure them?
  • Are any of my accounting policies a bit questionable?

Will I be in a position to sell tax-efficiently?

  • Will I qualify for Entrepreneur’s Relief? Could my wife/husband?
  • How will a sale affect my inheritance tax planning?
  • What are the tax implications of not getting all the sale proceeds up front?
  • Do I have a share option scheme in place? Is it tax-efficient?
  • How do share options work on a sale?
  • Will any of my shareholders benefit from EIS or SEIS relief?
  • Are any non-employees holding shares?
  • If so, do I need to get their shares back?
  • If so, do my articles/shareholders’ agreement allow me to do so?
  • If so, at what cost?
  • Are there any shareholders who might not want to sell?

Risky business?

  • What aspects of my business keep me awake at night?
  • Are my contracts in writing and accessible?
  • Are any of my key agreements on unwritten terms?
  • Which of my contracts could be terminated on short notice?
  • Have I completed all my intellectual property registrations?
  • Is my business data protection compliant?
  • Do I have adequate insurance in place?
  • Do my employees have up to date employment contracts?
  • Do they contain properly drafted and enforceable restrictive covenants?
  • Do I have a proper employee handbook and do I keep proper HR records?
  • Am I compliant with the latest rules on pension auto-enrolment?
  • When did I last carry out an IT audit?
  • Do I have an IT disaster recovery plan?
  • Am I up to date with my taxes (PAYE, NICs, VAT, corporation tax)
  • Does the company own all the assets it needs to operate the business?
  • Am I up to date with all our corporate filings?

How will I find a buyer?

  • Increasing your public profile can attract interest
  • Trade press and websites might feature potential buyers and investors
  • Attend some mergers and acquisitions (M&A) seminars and workshops
  • Speak to owners who have been through the sale process before
  • Get to know some M&A advisers who understand your sector
  • If you don’t know any M&A advisers, ask for some recommendations from your accountant, lawyer, bank or business angel network
  • Get two or three M&A advisers to talk you through: the sale process; how businesses are commonly valued; different sale strategies
  • Don’t sign up an M&A adviser without getting independent advice on their terms of engagement

This is intended to provide a first point of reference for current developments in aspects of the law. It should not be relied on as a substitute for professional advice. If advice on a particular circumstance is required please contact one of the lawyers listed below.

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