Some people only ever be involved in a business sale once, typically when they are looking to retire. Others will find themselves having businesses for sale a number of times during their careers as they move from one project to the next and this pair of articles looks at what is involved in realising the value of a business.So What Is So Difficult About Selling A Business?It’s important to realise however that there are fundamental ways in which selling your business will differ from the process of selling your car outlined in Part 1.When you sell your car, you don’t expect:- To worry about giving out information to prospective buyers about the car.- To worry about advertising that the car is for sale.- To be asked to lend the purchaser the money to buy the car.- The final price to be uncertain until you have worked out exactly how much petrol is in the tank.- To be expected to have to give written confirmation that the car has not broken down in the last two years.- To be required to give your purchaser driving lessons.- To promise the new owner that you won’t buy a new car.- The final price to be dependent on how well the car keeps running over the next two years.- To consider the tax implications of a sale.- To need anyone else’s permission to sell (assuming that you have paid off any hire purchase).But when you sell your business you may well find:- You need to be careful about how much information you give out during the process as for example, you don’t want your main competitors picking up your key customer list for free.- You want to keep the fact the business is for sale secret from suppliers, staff or customers until the deal is done.- You have to allow the purchaser some credit to enable them to pay you in part over time out of the profits of what was your business (known as ‘vendor financing’ or deferred consideration).- The final price will have to include stock at valuation (‘SAV’) at the date of sale.- You are asked to confirm some facts about your business in writing (‘give warranties’).- You have to agree to stay on for anything from a few weeks to a few years to help train the purchaser in running your business or to smooth the introduction of the buyer to your customers.- You are asked to sign an undertaking not to set up business again in any way that will compete with the business you have just sold.- The price agreed includes clauses that adjust the total paid up (‘escalators’) or down (‘clawbacks’) based on future performance.- Tax planning may be vital to ensure you obtain the best net result from your sale.- You may need agreement for the sale and transfer of assets or contracts from your landlord, franchiser, or even suppliers or customers with long term contracts that include clauses covering change of business ownership.In addition, just as there are specific price guides, key criteria for valuing (make, model, age, condition and mileage), and specialist magazines for selling cars, there may be similar ‘standard approaches’ that are specific to your business such as:- traditional routes to sale – such as specialist agents who deal with licensed premises, agricultural land agents or brokers who specialise in professional practices,- standard information required on which purchasers make decisions or on which businesses in your industry are valued – such as barrelage for pubs, or- traditional sale terms – such as SAV (‘stock at value’) for pubs.So How Will These Issues Affect Your Business Sale?The degree of complexity involved in the sale process and the issues arising from it will vary dependent on the size and complexity of the business and the nature of the sale.- A small husband and wife or lifestyle business such as a pub, small shop or guest house might typically be selling to other individuals. To reach these they might advertise for themselves in the small ads section of the relevant business press, or engage specialist estate agents. They would normally expect to achieve a relatively quick hand over although a deal might involve some form of vendor financing (where part of the payment is deferred over time), and a short period of ‘on the job’ training in running the business.- A small service business or professional practice such as a vets, dentists, accountants, estate agents or solicitors will often use specialists firm of business brokers to sell to other firms looking to expand although junior partners within the firm may have the option to buy out older partners who are looking to retire. This type of deal will often require a period of consultancy of up to say two years to allow for an orderly hand over of the trade and client base to the new owners and the price may involve some form of ‘earn-out’ where the value agreed will include an element to be determined by future performance.- An established industrial business with a turnover of over a few million is likely to need to engage accountants to assist in preparing the business for sale, marketing the business and dealing with the purchaser’s advisors. The buyer may be another business (such as a competitor in the industry) by way of a ‘trade sale’ or a team from within the business’s existing management (a management buy-out or ‘MBO’) backed by venture capital (VC) firm. The purchaser will employ accountants to undertake a detailed review of the business’s financial position and trading performance and prospects (a ‘due diligence report’) and payment might in part be made by way of shares or options in the acquiring company (‘paper’) rather than cash.- A rapidly expanding high tech business with high growth plans will need to engage a team of specialist corporate finance advisors to market a stake in the business to potential funders to raise money for the business’s expansion. Depending on the scale of funding needed, potential investors targeted could be wealthy individuals looking to invest in (and often to become actively involved as a director of) growing companies (‘business angels’); venture capital (‘VC’) houses looking for investment in the sector; or obtaining a listing that involves a number of external investors buying the company’s shares such as an Ofex or AIM listing. This process will require the preparation of a detailed sales document (‘prospectus’) requiring a range of projections and professionally prepared information that needs to comply with complex regulation and the transaction can involve a complex range of capital instruments such as preference shares and/or options put in place as part of the new financing arrangements.So while business sales all involve the same activities, the type and complexity of the issues involved will vary substantially dependent on the nature and scale of the business involved.