How to sell your business

Sep 22 2009 by Neil Warwick, The Journal

THERE are many articles about how to sell your business. Many start with an explanation of how the legal process works. More commonly you see articles discussing the preparation of a business for sale.

Frequently, this process is referred to as grooming the business.

Essentially this is a guide demonstrating how you should prepare your legal and financial matters to present your business in the most favourable way.

People considering selling their business will often be told that by preparing, or grooming, the business the due diligence process will be smoother and a purchaser may be willing to offer a higher enterprise value.

It is inevitable that professions will have jargon and shorthand, just like any other sector of the economy. However, the advice about preparing for a sale is that all of the paperwork and admin of the company ought to be as tidy as possible. The reference to due diligence is the process whereby a purchaser and its advisers will analyse the paperwork of your business to determine its enterprise value. Enterprise value is jargon for how much the purchaser will pay.

Clarifying what the jargon means does not answer the question of how to sell a business.

Typically there is not one outlet for business sales. A huge corporation may use a merchant bank. Other businesses may approach their accountant or their lawyer. Some opt for a trade sale, which can be the riskier strategy. Typically a trade sale will be to another business in the same market or a similar market. Trade buyers are willing to pay more to realise synergies or attract new clients.

However, if you tell a competitor about your business and the sale does not proceed, you may have weakened your competitive edge. Equally if your staff found out they could be very upset and disaffected.

It is vital one of the first steps you take when selling a business is to have a potential buyer signed up to a confidentiality agreement or a non-disclosure letter. If you have decided the time is right to sell, getting an adviser that understands confidentiality terms will be vital.

For information about how Dickinson Dees can help your business, contact Neil Warwick, partner, on (0191) 279-9375.