How to Sell Your Business - An Introduction

If you are thinking of selling your business this is a good place to start. The first question I would want to ask you is - "have you thought this through?" The first question you would no doubt want to ask is "how much could I get for the business?".

The answer to your question is that it depends on how well you have thought it through, because there are pitfalls. This article will introduce some early fundamental pitfalls that will not just affect the sale price, but also whether you can sell the business at all.

The first thing we need to assess is just exactly what you are selling. Are you a sole trader where the business is in your name and all assets and liabilities are owned by you?

Is this a partnership - are other partners involved with a financial interest who will need to approve the sale or otherwise? Is this a private limited company - are there other shareholders to consider, will every shareholder wish to sell?

It is also possible you are considering selling a public limited company - in which case can you persuade all shareholders to sell and are there any special interest considerations to take account of?

In each case there are issues to address from the outset which can stop a promising sale in its tracks and send the purchaser away without a backward glance.

If selling a sole trader business, you will need to be careful of implied warranties. These can be, in effect, undocumented assumptions that the buyer may be making when buying the business. One obvious one is that the business can still function when the owner has sold up and left.

If this proves to be not the case then in certain circumstances the buyer of the business may be able to claim back the full value of the sale from the seller personally, while still holding on to the business. Good preparation is therefore crucial

With both partnerships and private limited companies, the critical issue is agreement: are all shareholders and partners in full agreement before the sale process starts, because a change of mind half way through the sale will kill it dead.

There are special individual considerations for both partnerships and private limited companies which need to be dealt with at the outset and legal advice is usually needed at this stage.

To some extent a sale of a Public Limited Company is made easier by its very nature, but of course it does depend on how much of the business the buyer wants to acquire. If this is 100%, then prior agreement of all shareholders will be required, but obtaining this agreement has to be undertaken carefully to prevent share price distortions and accusations of insider trading.

Unscrupulous buyers may take advantage of, or deliberately encourage, disarray in the seller's camp to push the business they wish to buy over the edge in order to reduce its sales price, or even force a liquidation which they can then take advantage of.

Agreement of all selling parties is therefore essential at the outset as is good preparation and a clear vision of what the business should be sold for and what the minimum acceptable price is.