Some one has approached you with a view to buying your business. Whilst it’s flattering and exciting, also perhaps something you’ve had in the back of your mind for some time, often business owners don’t know what they need to think about and discuss with a potential buyer in those earlier meetings. Here are some of the things I would advise you to consider / discuss with a potential buyer
- Do they want to buy the entire business?
- Have they given any indication on the total consideration they will pay, how much of that will be paid immediately and after years 1 and 2? The least amount being deferred to years 1 and 2 is much more preferable due to the reduced risk it won’t be paid at a later date, but the buyer is likely to want some sort of deferred consideration (often up to 25%).
- Will there be a cash / debt adjustment to the consideration, or any other adjustments?
- Do they want to buy the freehold property? Will there be extra paid for freehold property?
- Will there be an extra amount paid for stock or working capital?
- Is there anything in their offer which is uncertain or dependent on anything?
- Will there be any security on the deferred consideration payments? What happens if the buyer doesn’t have the funds to pay the deferred consideration payments?
- Do you know what the conditions / targets will be for years 1 and 2 and whether there is any guaranteed minimum payment?
- Also, cash is king! They may offer shares in their own business or something else, as part of the consideration – this needs to be considered in terms of potential value (compared to cash) but also the risk of the consideration increasing or decreasing for reasons beyond your control.
- Will they buy the shares or trade / assets? From a sellers point of view, often a share sale is likely to be more tax efficient but from the buyers point of view often they want to buy the trade / assets to minimise a potential exposure to unknown liabilities in selling company.
- Will they want you to be involved either as hand-over, longer term or retaining any shares? Do you want to be involved? What will they offer you to work for them?
- Will their offer be subject to any approvals from shareholders, investors or anyone else?
- How will the purchase be funded and could this cause any delay to the transaction?
- Do they have any other conditions?
If you are selling your business and are unsure what to do next, would like to discuss some thoughts or simply have someone to bounce ideas off, I would be more than happy to have initial discussions free of charge. Please contact me on 01228 5347371 or email lindsay@saint.co.uk.
