If you are considering selling your business it is best to start preparing for it at an early stage and at least a few months before the intended date.

In general there are two ways of selling a business or company. The first is to sell the shares in a company. The second is to sell the business as a going concern which includes the assets and goodwill of the business. This article applies to both scenarios.

Any seller wants to ensure that they get maximum value for the business, which is payable as soon as possible and with minimum ongoing liabilities including warranties or indemnities. In order to maximise the value of your business and reduce the risk of any ongoing liabilities, it is a good strategy to review the financial, legal and commercial aspects of your business prior to sale to ensure everything is in order and fit for sale. If a prospective purchaser identifies that there are risks associated with the sale such as very few formal contracts with customers or the threat of and/ or any ongoing litigation then the buyer will try to negotiate a lower price. Therefore it is best to tie up these loose ends well in advance of putting the business on the market.

This exercise can either be undertaken by yourself or alternatively by a specialist advisor with experience of preparing a business for sale. If you choose to undertake the exercise yourself then you might consider using a Financial and Legal Due Diligence Questionnaire as a guide. These are due diligence documents which are sent by a prospective buyer to a seller in advance of a sale as part of the fact finding or due diligence exercise.

Once the business is ready to sell you will need to determine the best way to market it. There are a couple of alternatives namely you can do it yourself or you can use a corporate broker. If you are considering selling the business yourself then you will have the advantage of knowing the market players who might be interested in purchasing your business. The first step will be to draft a short letter indicating that your business is for sale. It’s important at this stage that the recipients of the letter do not know what business it relates to so the letter should be generic and not from an address/email address connected with the business. If the recipient is interested the letter should include contact details so this can be progressed. If the recipient does make contact then the next stage would be for it to sign a confidentiality agreement prior to disclosure of any further information. This would restrict any further use and/ or disclosure of any confidential information relating to your business.

Alternatively you could use a corporate broker. If you intend to do this you should ask to see some testimonials or case studies of other sales undertaken by the broker. The broker will ask you to sign their terms and conditions which you should review carefully and specific matters to consider include the following:

1. Review the fee and payment structure carefully. Many brokers ask for an up front fee at the time of signature of their terms and also a commission fee if they successfully sell your business. If possible it is always a good idea to reduce or remove the front end fees in favour of the commission fee upon successful sale.

2. If the broker insists on retaining the front end fee then you should ensure that there is a schedule of deliverables appended to the terms so that you know exactly what services you are getting for the fee. This should also include how many prospective buyers will be approached.

3. The terms should be non-exclusive thereby enabling you to approach a different broker. If this is the case then you may wish to include a claw back provision in the terms thereby enabling you to claw back some of the up front fee if you do have to appoint an alternative broker.

4. One point to factor into the fee structure is that the broker generally only markets your business and potentially negotiates the price. The broker generally does not get involved in legal or financial/ tax matters and you will need to factor in additional fees for accountants and lawyers. It is therefore important to identify exactly what overall services will be provided by the broker and to append the list to the broker’s terms.