Selling a business is one of the most significant decisions a business owner will make. It can also be incredibly complex. From preparing your business for due diligence and identifying potential risks to negotiating warranties, payment terms and handover arrangements, the decisions you make throughout the sale process can have a major impact on the value you achieve, how smoothly the transaction progresses and your exposure after completion.
This checklist is designed to help SME business owners and managers understand the key steps involved in preparing, marketing and selling a business.
Steps:
- Clarify your objectives before selling
- Do a business health check
- Review your legal documentation
- Audit your intellectual property and assets
- Review your property position
- Get your financial affairs in order
- Consider other factors that may impact your sale
- Negotiate Heads of Terms
- Due diligence
- Negotiate and sign the Sale Agreement
- Plan for completion and handover
- Post completion planning
Pre-sale checklist: how to prepare your business
If you are considering selling your business, it is never too early to start getting prepared. The steps you take now can have a direct impact on both the value achieved and how smoothly the process runs.
Before putting your business on the market, you should invest some time into making sure it is ready to sell, attractive to buyers or investors and that you are ready to let it go. At Scott Bailey, our corporate and commercial solicitors are perfectly placed to make sure you have everything covered before getting your business on the market. Here is our essential pre-sale checklist.
1. Clarify your objectives before selling
There are many reasons you may wish to sell your business – retirement, succession, capitalising on the value you have built, financial challenges within the business, disputes between shareholders, or perhaps someone has made you an offer you can’t refuse (legally, of course).
Whatever your reason for selling, it is likely to have a significant influence on your objectives. If you are passing on a family business to the next generation, stability, continuity and your business’s future success may all be key priorities. If you are selling a struggling business, you may be more focused on achieving a quick sale that addresses the financial challenges you are facing.
Before going to market, it is important to define what a successful exit looks like for you. Things you may want to consider include:
Price and payment structure
What price would you be happy with? Would you consider earn-out arrangements or deferred consideration linked to future performance?
Timing
How quickly would you like to sell your business? Are you looking for a quick exit or a carefully managed handover?
Deal structure
Are you looking for a full or partial exit? Would you like to remain involved as a minority shareholder? Is a share sale or asset sale likely to be more appropriate?
Future involvement
Would you like to stay involved in the business after completion? Would you be willing to if a buyer required it?
Preferred buyer
Do you have a successor in mind? Are you planning to sell to your employees or a competitor? Will you need to find a buyer or investor?
Personal circumstances
Are you sure you are ready to sell? Have you considered what life looks like after exiting the business?
Useful resouces:
2. Do a business health check
Before putting your business on the market, it is a good idea to do your own health check, sometimes referred to as sell-side due diligence. Identifying potential issues early gives you the opportunity to fix them before the formal due diligence process begins. If issues are discovered later in the process, a buyer may use them to renegotiate the purchase price or withdraw from the transaction altogether.
What buyers will look for
Buyers focus on risk, the quality and consistency of earnings, the strength of customer and supplier relationships, operational resilience, key person reliance, and how easily the business can be transferred and operated after completion.
The following steps explore some of the key areas buyers will scrutinise during due diligence and that you should review before selling your business.
3. Review your legal documentation
Clear contracts, employment records and company documents help build buyer confidence and streamline due diligence. This is where good commercial solicitors can add lots of value whilst saving you time and reducing risk.
Company documents and corporate filings
A prospective buyer will want to review company documents such as your Articles of Association (the constitutional document governing how a company is run), shareholder or partnership agreements, or share certificates. You should also make sure your Companies House filings are up to date and your statutory books are current. Depending on the sector you operate in, you may also be required to provide details of insurance policies or evidence of regulatory compliance.
Commercial contracts
Any buyer will expect to see copies of your key commercial contracts – not only with customers, but also suppliers and partners. You should review these before going to market to make sure they will not be impacted by the sale and that, should the buyer wish to continue with them, they can do so without interruption to the business. Ensuring your contracts are valid, up to date and fit for purpose will help avoid issues arising during due diligence that could delay your sale or impact the price you achieve.
Employment records, contracts and handbooks
Buyers will expect to see clear and accurate employment records, including employee contracts, policies and handbooks. If you do not have suitable, up-to-date versions in place, now is the time to address it. Our employment solicitors can help you with this.
4. Audit your intellectual property and assets
The goodwill, brand recognition and competitive advantage a business builds through intangible assets such as trademarks, copyright and patents are often fundamental to its value.
As part of the selling process, you will need to disclose all intellectual property rights to the buyer, including who owns the IP (intellectual property). Where ownership is unclear, a buyer may require assignment agreements to be entered into before the transaction can proceed.
Before going to market, it is a good idea to carry out an audit of your intellectual property rights and other business assets so that you are properly prepared when the time comes to sell. Our IP lawyers can support you with this if required.
5. Review your property position
A buyer will want details of any property your business owns or leases that they will be taking on.
If your business owns property, you should make sure your documentation is in order and that you are prepared to answer any questions the buyer may have. Property transactions can take time, so making sure everything is in place before going to market can help minimise delays during the sale process.
If the business operates from leasehold premises, it is usually the seller who needs to obtain consent from the landlord, who will commonly require references from the prospective buyer. Reviewing these requirements in advance can help ensure a smoother transition.
Whether you own or lease your premises, it is worth seeking advice from an experienced commercial property solicitor early in the process. They can help you understand your obligations, identify potential issues early and ensure everything is in place to support a smooth transaction.
6. Get your financial affairs in order
A buyer will want to investigate the financial affairs of the business carefully, including reviewing accounts, business bank statements and other financial records. They will want to ensure they are seeing an accurate reflection of the company’s financial position and understand any risks, liabilities or issues that could affect the value of the business.
It is a good idea to speak to your accountant early in the process, as preparing this information in advance can help streamline due diligence and reduce delays during the sale process.
7. Consider other factors that may impact your sale
Many other factors can impact the value and marketability of your business, underpinning the importance of seeking advice from an experienced corporate and commercial solicitor early in the process. A few additional areas you may want to consider include:
Key person reliance
A business that can operate independently is significantly more attractive to buyers. Prospective buyers will be wary of key person risk – where a business relies too heavily on a single individual, particularly the owner. Taking steps to ensure the business can continue operating without you at the helm, including building an effective and stable management team, can make it significantly more attractive to buyers.
Customer concentration risk and supplier dependency
Similarly, overreliance on a single customer or supplier can present significant risk to a buyer. If a large proportion of your revenue depends on one customer or your business relies heavily on a key supplier, buyers may have concerns about the long-term stability of the business. Taking steps to diversify your customer and supplier base before going to market can make your business more attractive to buyers.
TUPE
With an asset sale, employees will often transfer to the buyer under the TUPE (Transfer of Undertakings (Protection of Employment)) regulations, with their existing terms and conditions of employment preserved. Buyers will therefore want to review details of your workforce, including employee roles, contracts and other employment arrangements. It is worth familiarising yourself with the TUPE process and any obligations this may place on you as a seller before going to market.
Processes and systems
Buyers will want to see that your business has effective processes and appropriate IT systems in place. Well-documented operational procedures, strong cybersecurity measures and evidence of compliance with regulations such as UK GDPR (UK General Data Protection Regulation) can help build buyer confidence and reduce perceived risk during the sale process.
Marketing your business
Having prepared your business for sale, now is the time to get it valued, assemble your team for the deal and find a buyer if you do not already have one lined up.
8. Get your business valued
Having taken steps to make your business as attractive as possible to prospective buyers, it is now time to get it valued. Even if you have received an offer, you should still obtain an independent valuation from a qualified and experienced professional to ensure you achieve a fair price. This could include:
- Business valuation accountants
- Corporate finance advisers
- Specialist business brokers
It is worth bearing in mind that there is more than one way to value a business and different advisers may arrive at different valuations, so you may wish to seek more than one opinion.
If you are not happy with the valuation, you may decide to delay taking your business to market and consider what further steps could be taken to increase its value.
9. Build your deal team
Alongside corporate and commercial solicitors, there are a range of other professionals whose support you may need during the sale process.
Accountants
From ensuring your financial records are in order and advising on tax-efficient structures for the sale to providing a fair valuation of your business, accountants provide vital financial expertise throughout the sale process. A good accountant can make a real difference to the price you achieve.
Business brokers
Business brokers bring expertise in confidentially marketing businesses and identifying prospective buyers. If you do not already have a successor or buyer lined up, their support can be invaluable.
Commercial property solicitors
For transactions involving property, the expertise of an experienced commercial property solicitor is essential. At Scott Bailey, our corporate and commercial solicitors work closely with our commercial property team, helping ensure alignment throughout the transaction and avoiding unnecessary delays.
Wealth advisers, financial planners and tax specialists
Wealth advisers, financial planners and tax specialists can help you structure the sale in a way that not only works for the business, but for you personally. Whether you are planning for retirement, putting a succession plan into action or simply capitalising on years of hard work, you should ensure the transaction is handled as tax efficiently as possible.
Assembling an experienced team of qualified professionals can help ensure your business is properly prepared for sale, minimise issues during the transaction process and put you in the strongest possible position when negotiating a deal.
10. Consider deal structure and tax
The structure of a deal can have serious legal, financial and commercial implications. Seeking early advice from an accountant or tax expert with experience in business transactions and succession planning can help ensure your sale is structured in line with your objectives. However, it is important to note that your preferred structure may not align perfectly with your buyer’s preferred structure. It is worth discussing with your adviser what points are non-negotiable and where you may be willing to compromise.
Things you should consider include:
- Whether you would prefer an asset or share sale
- Whether you are looking for a full or partial sale
- Whether you would consider supporting the business post-sale, for example, under a transition services agreement
- Whether you would consider some form of deferred consideration where a percentage of the sale price is paid based on future performance, such as an earn-out agreement
- What the most tax-efficient way to structure the deal is for you and the business, and whether you qualify for any tax relief schemes such as Business Asset Disposal Relief (a UK tax relief that may reduce Capital Gains Tax when selling business assets).
11. Find a buyer
At this stage, you have laid the groundwork for a successful sale – you have made your business as attractive as possible to prospective buyers and ironed out how you would like the transaction to be structured and the price you would like to achieve. Assuming you have not already got a successor or buyer lined up, now is the time to find one.
There are many different avenues available to you at this stage. You could use the services of a specialist business broker, approach investors through your professional network or reach out to a competitor. Whatever approach you take, confidentiality is extremely important.
You do not want competitors, clients, suppliers or employees being made aware of your plans to sell the business before you are ready to communicate them. This is one of the reasons that using an intermediary, such as a solicitor or broker, is advantageous. An intermediary can approach prospective buyers whilst keeping your identity anonymous. Should conversations proceed, you should always have a non-disclosure agreement in place before providing any potentially sensitive information about your business. Our corporate and commercial solicitors can draft non-disclosure agreements to protect your business and support you through the early stages of discussions with prospective buyers.
If you already have a successor, management team or buyer lined up, it is at this stage that you can start agreeing a framework for the transaction. It is worth noting that you should still have a non-disclosure agreement in place before sharing sensitive information about the business, even if you know and trust your buyer.
The deal
With a buyer identified, the focus now shifts to negotiating and documenting the transaction. This is often the most detailed and commercially sensitive stage of the sale process, with decisions made here having potentially significant implications both financially and legally.
12. Negotiate Heads of Terms
Heads of Terms set out the key commercial terms of a transaction. Whilst they are not usually legally binding, they lay the foundations of the deal and help avoid disagreements later in the process that can delay the transaction or derail it completely. Typically, Heads of Terms cover matters such as price, deal structure, payment terms, timescales and transition arrangements.
Your solicitor will be able to support you with drafting or reviewing Heads of Terms, ensuring they properly reflect the agreed commercial position and protecting your interests throughout negotiations. At this stage, it is common for buyers to request an exclusivity agreement, preventing you from negotiating with other buyers for a fixed period.
13. Due diligence
The due diligence process is the buyer’s opportunity to make enquiries about your business, reviewing financial, legal and operational records to ensure they have an accurate understanding of the business and are not taking on any unexpected risks or liabilities.
Having taken the time to prepare all relevant company records and resolve any potential issues before putting your business on the market, you will be well prepared to respond to the buyer’s enquiries.
The information you provide at this stage can help protect you from future legal claims. Sellers are usually asked to provide warranties in the Sale Agreement about the condition of the business – disclosing issues at this stage can help protect you from legal claims post-completion.
14. Negotiate and sign the Sale Agreement
Having completed due diligence, now is the time to formalise the terms of the deal as set out in the Heads of Terms. Negotiating, drafting and reviewing the Sale Agreement is one of the most important stages of the sale process, as it determines not only the price you achieve, but also your commitments and potential liability post-sale. Key terms that need to be negotiated include:
Price and payment structure
Whilst a price may have been agreed in the Heads of Terms, buyers often seek to renegotiate following due diligence if new issues or risks come to light. Your solicitor will advise you on the buyer’s position, negotiate on your behalf and help protect your commercial interests throughout discussions.
Once the purchase price has been agreed, the payment structure will also need to be finalised. This may include whether the full amount will be paid upfront or whether part of the purchase price will be deferred or linked to future performance.
Warranties, indemnities and disclosures
Buyers rely on accurate and complete information to make informed decisions during the sale process. As a result, they often require warranties – formal, contractual statements about the condition of the business. If these later turn out to be inaccurate, the seller may become liable for any resulting losses. Indemnities go a step further, requiring the seller to cover losses resulting from a specific liability if issues arise after completion. They are commonly used to protect buyers against known risks, for example, where the business is subject to a pending HMRC investigation.
Buyers typically want warranties and indemnities to be as broad as possible, whereas sellers want to limit their liability post-sale. This often makes them one of the most heavily negotiated aspects of the Sale Agreement.
How do you protect yourself as a seller? First, ensure your solicitor negotiates warranties and indemnities that limit your liability, financial exposure and the time limits for bringing claims. Second, make sure that any known issues have been properly disclosed in your disclosure letter, as buyers are less likely to succeed in claims relating to matters they were aware of before completion.
Restrictive covenants
To protect their investment, buyers often require restrictive covenants that prevent the seller from soliciting employees, clients or customers for a specified period post-completion. Sellers may also be restricted from setting up or becoming involved in a competing business for a certain period after the sale.
As a seller, you should ensure that any restrictions are reasonable and do not unfairly limit your future business or career opportunities. Your solicitor will be able to negotiate terms that protect the buyer’s investment whilst limiting unnecessary restrictions on your future activities.
Transition arrangements and ongoing involvement
In many cases, business owners either wish to or are required to stay involved in the business for a period following completion to ensure continuity, transfer operational knowledge and maintain relationships with key clients. Transitional arrangements may also need to be put in place to support the handover of systems, contracts, supplier relationships and ongoing projects.
The terms of any ongoing involvement should be clearly set out in the Sale Agreement to avoid disputes or disruption to the business post-completion. It is important to make sure the arrangements align with your objectives and future plans.
Completion arrangements
Your business does not have to change hands immediately after the Sale Agreement is signed. Instead, a future completion date can be agreed. In some cases, completion may be dependent on either the buyer or seller satisfying specific conditions. These terms should be agreed and clearly documented within the Sale Agreement.
Negotiating terms takes skill and experience. The decisions you make at this stage can have serious and far-reaching implications, so it is critical that you seek expert legal advice from a qualified corporate and commercial solicitor. At Scott Bailey, our team has decades of experience helping owners of small and medium-sized businesses negotiate, draft and review Sale Agreements. We take a pragmatic approach, protecting your interests, identifying risks and ensuring the terms align with your objectives, whilst helping the transaction progress smoothly.
15. Plan for completion and handover
Once the Sale Agreement has been signed and completion has taken place, the focus shifts to the handover of the business. This may include transferring systems, contracts, records and operational responsibilities, as well as communicating with employees, customers and suppliers where appropriate.
Your solicitor will be able to advise you on your obligations throughout the handover process, helping ensure the transition is managed smoothly and minimising disruption to the business post-completion.
16. Post completion planning
With so much focus on selling and handing over your business, it is easy to overlook personal considerations.
- Have you thought about reviewing and revising wills and wealth protection structures you have in place?
- Have you considered how you will invest (or spend) the money from your sale?
Whilst this is the last step in our checklist, you do not have to wait till you have sold to start putting these plans in place. The Wills, Trusts and Probate team at Scott Bailey can help with all manner of estate planning, ensuring your wealth is protected for your loved ones.
Selling a business can be complex, particularly where property, employees, funding arrangements or ongoing involvement are concerned. However, with the right preparation and experienced advisers behind you, the process can be managed efficiently whilst protecting both the value of your business and your long-term interests.
At Scott Bailey, our experienced business sale solicitors support owner-managed businesses at every stage of the transaction, from early-stage preparation and due diligence to negotiating Sale Agreements and completion. To arrange a consultation with our specialist team, please get in touch.
