The decision to sell a business is one of the biggest decisions a business owner will ever make. Once the owners have put in the years building up a business from scratch, they will want to make absolutely sure that they get the most they can out of selling it.

In a similar way, when you’re buying a business, you should approach it with the same meticulous thought and care so as to be sure you know exactly what you’re buying and to give you the best chance of success in your future endeavours with that business.

This article is designed to give a flavour of the structure of transactions and provide practical advice for anyone considering a sale or an acquisition.

Here is the basic order of processes involved in a sale/acquisition of a business:

First off, the buyer and seller both instruct their advisers as to what they are looking for from the sale/acquisition.

A Heads of Terms and Confidentiality Agreement is then drawn up which both parties have to agree on.

The buyer can then make whatever enquiries he likes, these are known as due diligence enquiries, and the seller is obliged to reply.

The buyer is then required to draw up an acquisition agreement, and the seller, a disclosure letter.

Both parties will then meet up and agree (or compromise until an agreement can be made) on their acquisition agreement and disclosure letter and exchange copies of each.

At this point it’s time for the actual implementation of the ownership change and then carrying out any pre-agreed post-sale actions.

There are usually several documents involved in the sale of a business and they will usually include:

Heads of Terms;

Confidentiality Agreement;

Due Diligence Enquiries

Acquisition Agreement (of shares or assets as appropriate) and Deed of Indemnity (share purchase only)

Disclosure Letter;

Service Contracts.

SHARES v ASSETS

If a company is purchased, all of its assets and liabilities are taken on by the buyer, whether they buyer knew about them or not.

On an asset purchase, the buyer will only take on the assets & liabilities he specifically agrees to purchase.

Either way, employees will retain rights of employment.

Conclusion:

Buying and selling businesses is a specialist area so it is worth considering appointing one off advisers to help you through the transaction. Your main advisers will be your accountant, a specialist law firm and possibly a corporate finance adviser.

A good starting point is to seek your accountant’s advice on a value for the business. Although valuing private companies can be a complex process, it is always better to have a realistic price in mind before you embark on a sale or purchase process.

Top Tips:

1. Do as much preparation as possible;

2. Pay attention to the Heads of Terms;

3. Deal with due diligence enquiries/replies promptly;

4. Use your advisers well;

5. Don’t forget the price.

If you are thinking about selling your business or buying out another, it would be highly advisable to seek advice from a professional, specialist law firm such as Tolhurst Fisher. They are a firm of solicitors Essex and are specialists when it comes to buying or selling businesses. Click on solicitors Essex