Then in part two we took readers through every key stage of the sales process, from hiring a business-transfer agent to closing the deal. Now we’re going to linger a little longer on the final stage of selling your business: completing the sale.
So you’ve found a buyer, determined that they’re serious, and that they have the financial means. You’ve also negotiated terms and agreed a deal in principle. What next?
Before the buyer commits to one of the biggest investments of their life, they’ll want reassurance that they’re getting what you’ve promised. Any deal agreed in principle is made on the basis of certain claims made about the business’s financial health, physical and non-physical assets and reputation, among other things.
The next stage, called due diligence, is the process by which your buyer examines your business closely to check the veracity of those claims.
The process involves an inspection of your physical assets (premises, equipment, inventory and so on), as well as all paperwork (financial accounts, tax records, licences, employee, customer and supplier contracts, etc).
Don’t agree to due diligence until you have agreed a price and terms with the buyer. The duration of the process is negotiable and generally undertaken in tandem with the preparation of the legal paperwork needed to close the sale.
For clarity, here is a list of things the buyer will probably request evidence of:
– Historic and projected financial performance
– Valuation of property and other assets
– Legal and tax compliance
– Major customer contracts
– Intellectual property protection
– Any pending legal action against the business
– The final sale agreement
The more cooperative you are with the buyer (within reason) the quicker you can close the deal, and the lower the chance of a frustrated buyer pulling out.
Cooperation requires preparation; get your documents up-to-date and in order and your premises in a fit state for inspection in advance of the commencement of due diligence.
The sale agreement
When the due diligence process approaches its conclusion, you should think about finalising the sale agreement with the help of your advisers. Outlining clearly the precise terms of the sale, the sale agreement is broadly based on what was initially sketched out in the heads of terms.
Even though you’ve already reached agreement over the heads of terms, be sure to consult with the buyer in the formulation of the sale agreement. And be clear in your own mind exactly what future liabilities, indemnities and warranties you are taking on as part of the agreement.
Professional advice is invaluable when it comes to preparing and finalising paperwork in consultation with the buyer. Even if you’ve got this far without professional assistance, it might be worth appointing a solicitor or business transfer agent to help you get the deal over the line.
On rare occasions buyers try to renegotiate the price downwards based on something uncovered during the due diligence process. If it’s something genuinely at odds with the information you’ve already provided, there could be justification for renegotiation – that’s a judgment call to make with the help of your advisers. However, if their reasoning seems spurious, resist their overtures, even if they threaten to walk away.
Once a final price is agreed by both parties, the buyer will sign a binding contract of sale. At this point the deal is done and all those years of graft, and financial investment will finally reap you a well-deserved financial reward.