Buying and selling a business
There are many rewards to being your own boss and the sense of achievement in growing your own business can be exhilarating.
But whether you’re selling a business that you’ve nurtured from day one, or finally taking the decision to become an entrepreneur, it’s important to know what you’re getting into.
Make sure the timing is right
If you are looking to buy or sell a business, it’s important to consider if now is the best time – not just for you and your family, but also from a business perspective.
Things to take into account include:
- The current state of the business
- The business’s prospects for growth
- Your retirement or life goals
- Any potential tax complications
- Your current personal and financial situation
Patience is a virtue
Don’t be hasty. Finding the right buyer or business for sale can take time and these things shouldn’t be rushed. Ideally you want someone who shares your values and outlook and this should be clear from the outset, be it a ‘traditional local business’ or a ‘thriving business with multiple sites’.
Sellers should think about who they are targeting when advertising their business and tailor language and information towards that type of buyer. There’s no harm in asking questions to make sure they share your business ethos and will maintain and protect your business’s reputation.
Buyers should have a clear picture of what they’re looking for and where they are and are not prepared to compromise, e.g. freehold or leasehold, home based etc. It’s important to take the helm of a business you understand and can make a success.
Understand the true value
There are several ways that the value of a business may be calculated. Often, the total estimated value includes the business’s profit, its assets and cash flow. It would be prudent to look at the balance sheet, profit and loss accounts history of the business to see how well it has been performing. Additionally, it is also worth showing these figures to an Accountant who will be able to provide you with specialist advice.
As a buyer, it’s important to understand how the seller worked out the value of their business. Ask the seller to explain the reasoning and check their figures using available records. It’s also essential to look at market predictions, the general state of the market or soon to be launched technologies that could increase or decrease the value.
For sellers, it’s necessary to try and be impartial about the value of your business. Keep a record of all documents used to work out the value, or hire an independent expert to evaluate the business value.
Preparation is key
Once a price and terms have been agreed, due diligence must be carried out. A buyer will not sign a letter of intent until they understand the good, the bad and the ugly. Although this part of the process can be time-consuming, it’s essential for a smooth sale.
To ensure the appraisal is efficient, sellers should have all documentation prepared for the buyer, including financial forecast, staff turnover etc. You will also need to show the buyer around your business without revealing the potential sale to staff.
Buyers should use this period of time to ask questions and examine any and all documentation to build up a clear picture of the business. It is also worth ascertaining staff satisfaction, brand reputation etc. although this can be difficult.
Speak to a professional
Running your own business and being your own boss is a fantastic achievement. However, buying an established business, or selling a lifetime’s hard work is not that simple. Our Commercial Department is well-established and can offer you advice and guidance throughout the process. We can also prepare the draft contract for approval and arrange necessary enquiries and searches.
If you’re considering buying or selling a business, Caversham Solicitors can help you protect your investment, or the proceeds from your sale, against the unexpected. For advice, call today on 0800 085 5575.