Stages Involved in Selling a Business
Selling a business is neither an easy choice, nor an easy process once the choice has been made. In this article we try to cover some of the fundamental stages involved in selling a business.
To start with the seller needs to be sure that they want to sell a business. Many times sellers go through all the stages spending a lot of time and effort and money only to realise that selling is not what they want to do, pulling out of the sale. Be sure as a seller you understand why you want to sell.
The seller should get the business valued by professionals. Knowing what the true value of the business is puts the seller in a position to make better decisions resulting in a quicker sale for the correct price. Overvaluing the business just like overvaluing a house may result in no sale and no interest. Undervaluing may result in a quick sale but at the expense of selling the business out short. Again the criteria to use really will depend on the personal situation of the seller, i.e. how long they are prepared to wait for a sale and for what reasons.
Once a potential buyer has been located, the detail of the sale begins. To start with an agreement has to be made by the buyer and seller (Called the heads of terms) so that the framework of the sale can be agreed, i.e. price, time scales, and pre and post sale criteria that need to be met. Also it is an opportunity for both the buyer and seller to put in penalisation and confidentiality clauses to protect against the fact that the other party is not just snooping and is actually serious about the sale if all terms are met. This is especially important to the seller who wants to ensure that after divulging all the confidential details of their business to the buyer, the buyer just doesn’t pull out of the sale and use all the information learnt to their own advantage.
The buyer will want to confirm that what the seller has said about the business is true. There are two parts to this confirmation process known as the due diligence process.
Part one is accounting due diligence which means that the seller will need to provide the buyer with all accounts for at least the last financial year so that the buyer can verify turnover, profit etc. If the figures don’t match up then the buyer could pull out of the sale.
Part two is legal due diligence where contracts against the business on sale are checked, tax and vat and other liabilities are considered and generally all legal claims which could arise against the business on sale are considered. The terms and conditions of the sale and any restrictions and constraints against the seller and any guarantees of the seller are determined. Essentially the buyer is trying to ensure that once they have purchased the business there is nothing that could affect the smooth running or financial standing of the business on sale and if there is anything, then the buyer should know about it before purchase, because it could affect the buyers decision to purchase.
The details of how complicated the legal due diligence becomes is very much dependant on whether the business on sale is for the whole business or the assets and goodwill of the business.
To ensure that all stages of the sale go well there should be clear and open communications between the buyer and seller, and under no circumstances should the communication go between buyer to buyers legal counsel, to seller legal counsel and finally to the seller and vice versa. Legal counsel should advise individual parties and only deal with each other on specific legal matters.
Once the sale is complete and the seller has received his money, the seller will most probably be involved with the buyer for a period of time helping the buyer to take the business on board in a seamless manner. This is usually called the handover period.
To conclude, if both the buyer and seller are honest brokers and represent the details of the sale clearly and concisely from the very first, then there is no reason why the sale should not progress through with the minimum of pain.
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Article Source: ArticlesBase.com - Stages Involved in Selling a Business