Selling A Business

Selling a business is likely to be one of the most important financial (and emotional!) decisions that an owner of a business will ever make.

Before you decide to sell your business, you should give careful consideration to two main issues:

  1. Your objectives. For example, do you wish to cut all ties with the business or do you wish to remain involved with the business? Selling the business may not always be the best option, particularly if you are keen to remain involved with the business.
  2. Who else will be affected by the sale? Remember that consideration must be given to the people who are involved in your business, such as shareholders, managers and employees.

Once you are sure that selling your business is the right option for you, you must then consider how you would like to sell your business.

Deciding how to sell your business will depend on your individual circumstances and the legal status of your business. Potential purchasers may also demand a certain deal structure or a certain way in which they wish to acquire the business.

Therefore, it is impotant that you are clear on what you want to acheive from the sale and how you would like to structure the sale before you enter into negotiations with potential purchasers (which will save time, money and unnecessary delays).

There are several different ways to sell your business:

Partial or full sale

You may want to sell the entire business or maintain a part of the business. Sometimes the buyer will prefer you to retain partial ownership and have an involvement in the business in order to ensure business continuity. This will also provide the purchaser with confidence that the business will do well.

Sale of assets

You can sell your business assets such as the equipment, intellectual property or your customer list, rather than selling the business itself. This may be attractive to a purchaser who does not want to take on liabilities and obligations. For example, the purchaser might not want to employ your employees. You will be left with whatever assets and liabilities are not included in the sale. In this case, tax advice is an essential factor in deciding the most suitable deal structure.

Immediate or phased payment

You can ask for payment in full when the sale is completed, or you may be prepared to accept payment in installments. The purchaser may well prefer to pay in installments. But you will be at risk, for example if the purchaser cannot make future payments. Some buyers will want to make a series of payments based on profits, in which case you may be contracted to stay with the business for a period of time. This is often known as an ‘earn out’.

Your choices can affect whether buyers are interested and how much they are prepared to offer. They can also affect the tax treatment of the sale.

If you’re interested in buying or selling a business and would like to find out more, please contact Izaz Ali on izaz.ali@lawdit.co.uk.

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