There are many ways to exit your business one of them is selling to an external buyer:
There are a number of questions you should ask yourself before considering an external sale.
Are they serious?
- There are a lot of tyre kickers out there. They may not really be that serious about buying your business, they are just nosy.
- Flush them out by careful research, and a well-staged disclosure process – don’t reveal all at once!
- Produce good quality, future-focused information memorandum on the business as a first stage. Ensure all historical numbers are 100% accurate even if your accounts are not. This will give you a solid base for discussion with a potential buyer.
IT’S YOUR BUSINESS, YOU SET THE PACE
Are they honest?
- This is a huge issue nowadays.
- Protect yourself with a staged disclosure.
- First stage: As above – information memorandum with only the overview and potential of the business, and generic financials.
- Second Stage: They are keen – so they sign a binding non-disclosure agreement with “cease and desist” as well as penalty clauses for breach of confidentiality or use of information.
- Third Stage: They are still keen, asking the right questions, but really want to do due diligence on your business – full disclosure. At this point consider asking them to put a fully refundable deposit into your lawyers’ trust account. If they won’t – you’ve got your answer.
IT’S YOUR MONEY – PROTECT YOURSELF!
Can they afford it?
- Hard to evaluate this, as many businesses run on smoke and mirrors, and good research including credit agencies is the only way to protect yourself.
- Asking for a good deposit at due diligence also helps flush out the non-financial bidders! Don’t fall for bluff, be a little cynical!
Will they protect staff?
- Under current legislation, you do need to look closely at this. Because even after you have sold a business, action may still be taken if staff are not able to continue in employment when you’ve led them to expect continuation.
- Get good legal advice here from an employment law specialist – probably not your own lawyer! Look after your people’s interests
- Can you protect yourself – is the price fair?
- Obtain an independent valuation (preferably two) for your business.
- This can be used as a benchmark to ensure that you receive a fair price for your business. There are two usual methods for calculating a valuation which are:
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- Historical information plus forecasts if available.
- Current information plus a three-year forecast.
- It is often worthwhile having a valuation completed using both methods.
Employee comeback?
- Ensure that the sale and purchase agreement covers off all staff and who will be liable for any employee actions post-sale.
- Get good legal advice here from a mergers and acquisitions law specialist – probably not your own lawyer!
Whether you decide on an external sale or not, the advice you will receive from ABL will be invaluable for your exit strategy. Contact us and we will put you in touch with the best advisor for your business. Advantage Business Advisors are with you every step of the way.
