So, you’ve accepted an offer on your business? Congratulations!
That’s our work done, we’ve connected you with buyers and now you’ve got somebody to purchase your business.
But don’t worry, we won’t leave you wondering ‘what’s next?’. This guide will walk you through the steps to get the sale over the line.
Although not strictly necessary, we strongly recommend both parties to instruct solicitors at this point in the business sale journey.
The following steps should be undertaken (by yourself or your solicitor) to ensure you are providing the buyer with all the necessary information to get the sale completed.
First things first, you’ll need to see the Heads of Terms.
1. Heads of Terms
Note, Heads of Terms can sometimes be called Letters of Intent.
What are Heads of Terms?
In short, they form a document that defines the financial terms and conditions of a business sale including the type of purchase (shares or assets), purchase price, a closing date, and conditions of closing. This explicitly demonstrates the buyer’s intent.
Although not usually legally binding, they set out the key commercial issues at this stage in the transaction and they will likely be used to form the Purchase Agreement after due diligence is completed.
As due diligence is such a thorough exercise, it is only fair that both parties have an expected outcome. So, unless a major bump in the road is stumbled upon, it means the buyer agrees to pay the amount set out in the Heads of Terms.
2. Non-disclosure Agreement
Due to the private nature of the due diligence, you may wish to ask the buyer to sign a non-disclosure agreement (NDA) if you haven’t done so already during the enquiry stages.
As due diligence is an in-depth exploration into all aspects of a business, an NDA prevents a potential buyer from disclosing confidential information to any other parties. It also protects you and your business against potential duplication of ideas.
3. Due Diligence
What is Due Diligence?
Due diligence is essentially an investigation into the facts and financials of a business, it is extremely important in a sale and should not be neglected. It is where the bulk of the post-offer work occurs.
The process enables a buyer to assess the true value of the business, along with the risk associated with it before completing the purchase. It can be a lengthy process and exposes all your company’s information, including and not limited to strategy, pricing, customers, suppliers, and any other propriety information.
What is Looked at During Due Diligence?
- Financial statements and accounts; including at least 3 years’ of tax returns, balance sheets, cash flow statements, and sales records
- Condition of stock (if applicable)
- Customer contracts and orders
- Employment contracts
- Management structure (if applicable)
- All legal documents; including leases, purchase and distribution agreements, insurance, licences, and permits
- All liabilities; including all settled and outstanding bills, incoming payments, and any debts
- The business’s operations, strengths, weaknesses, threats, and opportunities
- The business’s wider market via industry and economic data
- The reputation of the business with customers, suppliers, and local stakeholders
It’s ultimately down to the buyer to uncover all they can about the business, so expect them to be extremely thorough at this stage.
Realistically, it is likely that there will be at least one feature of the business that will flag up an issue with the buyer, so don’t be taken aback if this is the case.
If a significant issue arises, it is likely this would lead to a renegotiation of terms.
Now that we’ve explained due diligence and that it can be a complicated process, we want to again highlight our strong recommendation to use a solicitor.
4. Purchase Agreement
Both parties will need to agree on a more extensive Purchase Agreement. The basis of this will have been agreed upon in the negotiation stage and further detailed in the Heads of Terms.
In this agreement, the detailed terms and conditions of the sale will be documented.
Here, you should include details and representations about your business. These details are statements of fact regarding the status/condition of assets, such as equipment, inventory, contracts, leases, taxes, lawsuits, customers, and suppliers.
Once this is signed and agreed upon by both parties, it is time for the funds to exchange hands.
Please note… ensure you’re completely happy with all the terms of sale before the transferal of funds occurs.
This may be done as a cash payment directly from the buyer, or it may go via their solicitor.
One final thing to consider is the handover, this can be immediate or transitional.
An immediate handover is when there is a sudden shift in ownership and management and from this point, the buyer is now responsible for the business.
With a transitional handover, the exchange is more gradual. The terms of this type of handover are to be decided between you and the buyer. Usually, the seller will stay on for a transitional period, normally lasting a couple of weeks or even months.
We recommend a transitional handover where possible.
… and breathe, that’s it. We’re so excited that you’ve sold your business, well done.
What's next? Maybe it's time to register as a buyer and start the search for your new venture!