Three steps to buying or selling a business
Hopefully, you have read the first instalment in our series of articles about exit planning and business sales, if not, then you can read this here.
In this second article, we focus on the preparation and consideration needed when buying and selling a business. With our years of commercial experience, we’ve been able to highlight the necessary three steps to buying or selling a business.
- Agree the key terms of the sale.
You may have been assisted by a business broker, or been contacted directly with an offer, to purchase your business. Either way, it is important to agree on the key terms of the deal. These are known as the Heads of Terms and greatly reduce the potential for misunderstandings further down the line.
Key points to consider and agree within these heads of terms are:
- Price – how much are you willing to pay or accept for the business?
- What’s for sale? Is it assets, shares, or both?
- Payment terms – are you being paid in full on completion? Are you being paid in instalments? Do you have any security if the buyer defaults?
- Employees – Are your employees transferring with the business? If so, you will need to consider the implications of TUPE and all of the related employment law around this.
- Property – What needs to be transferred? Are there lease arrangements or freehold ownership and plans to transfer?
- Timeline – when would you like the deal completed?
These are all essential as part of the first step in our three steps to buying or selling a business.
2. Prepare for due diligence
When undertaken effectively, the second step in our three steps to buying or selling a business, can greatly speed up the process. The buyer will undoubtedly raise a number of financial and legal due diligence enquiries, covering a range of topics.
Once you have received these enquiries, you will need to provide a reply to each, along with any supporting documentation, such as a copy of a contract or anonymised details of your employers.
Begin to organise any paperwork you have relating to the business. Due diligence is an important stage of the transaction. It is an audit or review of the business and is carried out to identify facts or specific matters, much like would be undertaken in a house purchase.
3. Agree the transaction documentation
And the third and final step in our three steps to buying or selling a business, is possibly the most crucial part of the transaction. The key sale and purchase documentation will be negotiated between the parties and will dictate the contractual details of the transaction. This will not only set the terms upon which the sale or purchase takes place but will govern future obligations you will be required to adhere to.
Now that we have reached this point, we will take a break until our next article in this series. Our third article will provide more detail about the key transaction documentation which may govern the purchase or sale.
We hope this ‘three steps to buying or selling a business’ guide has been useful. If you would like to discuss your plans and see how our experienced company commercial team can assist, then please call us today on 01752 203520. You can also email me directly via james.peterson@gasolicitors.com.
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