Selling a business is not only a complicated and time-consuming process, but it can also be highly emotional and logistically difficult for business owners. As such, owners looking to sell should understand and prepare themselves for the demands that a sale brings.
The first step is making that big decision to sell. That in itself is often a huge emotional hurdle and, while it can feel like the beginning of an exciting journey, this step is only the prologue to a much longer story!
Once a buyer has been found and basic terms agreed, lawyers are likely to be instructed and from this point there are four key stages for the seller, namely:
- due diligence;
- negotiation of the main contract terms;
- warranties; and,
- life after the sale.
It’s easy to underestimate the level of work involved in due diligence and it’s often the most time-consuming aspect of the whole sale process. Regardless of the deal value, a sale will involve the compilation and sharing of many, maybe hundreds, of documents. From staff records and commercial contracts to the budget for last year’s Christmas party!
Owners are often completely unprepared for every aspect of their business to be pored over by a potential buyer and may feel personally and professionally scrutinised. It is understandable that some sellers become defensive at this point but remember, it is in no way personal. It is simply the prospective buyer trying to really understand the business and assess any risks or potential for future liability.
The task is certainly mammoth, but business owners can make the process less onerous by getting their house in order prior to any sale. One way of doing this is to have a really organised electronic filing system – perhaps even go paperless. This is something we’ve seen more of in recent years and being able to drag and drop files into a single data store for the buyer to review will be infinitely quicker than searching through filing cabinets or boxes to locate a single sheet of paper.
Something else to consider is filtering your paperwork to make sure you only hold up to date, relevant information. In any event, data protection rules require this. We often see clients who have kept records and details of historic contracts or long retired staff members, and this can make the due diligence process more cumbersome than it needs to be.
Negotiation of the main contract
Contract negotiations can begin even before the due diligence has been finished. This can be stressful for sellers as they’re trying to focus on the due diligence but are also being pulled into complex discussions about the deal terms.
Understandably for many sellers, there is often a significant level of emotional investment. This can be amplified where the reason for sale is to enable retirement after decades of hard work, and a buyer who is a tough negotiator can really impact the seller’s feelings about the deal.
It’s always important therefore for the seller to feel comfortable talking to their close advisors, including accountants and lawyers. Those advisors need to be able to offer objective and constructive advice through this process, while supporting the seller along the way to reach an agreement that meets the needs of both buyer and seller.
Part of the contract for the sale of the business is a suite of contractual warranties, which are legally binding statements the seller gives about the business. As this list can be very comprehensive, and because a false warranty can lead to personal liability on the seller, the warranties need to be reviewed closely between the seller and their advisors.
Again, this close questioning about the business can lead to sellers feeling accused and defensive. Understanding that this is just another part of the sale process, that it’s not personal and is designed to protect the buyer’s investment, can help to prepare a seller for the emotional journey.
Life after sale
While not strictly part of the legal process, sellers should take time to consider what they want life to look like after the sale. For some owners, the transition can be sudden: handing over the office keys at the end of the day, never to return. For others, they might leave work one evening as owner, returning tomorrow as an employee if they’ve been asked to stay on to help with the transition, which can be a peculiar experience!
And then of course there’s the end of the emotional journey. It’s likely the sale will have taken a great deal of the seller’s attention for many months or more. Then one day it’s over. Business sold. Some sellers report a feeling of anti-climax as opposed to elation or sadness. They often need time to reflect on what they’ve achieved before embarking on their next life chapter.
Selling a business is likely to be one of the biggest decisions you make and, while you might have taken time to understand the legal and financial elements of completing the sale, it’s also worth thinking about how you will handle the less obvious emotional and practical parts of the journey.