Selling your business: Start to finish

Selling your business is an important decision that requires careful planning and execution. This process can be complex, but with the right steps and help, you can go through it successfully. Here, in brief, are the important steps to follow to sell your business.

Preparation

Start with thorough preparation. Gather all financial data and documents relevant to the sale. This includes tax returns, balance sheets and profit and loss statements from past years. Make sure the accounts are in order so that potential buyers have a clear picture of the financial health of your business. Good preparation also helps build confidence with interested parties. If properly prepared, this creates a strong impression that also puts you in a better negotiating position.

Valuation

A good valuation provides insight into what you can realistically ask for your business. It is important to look not only at the numbers, but also at the market and comparable companies in the industry. There are several ways to determine value. For example, you can calculate it based on future free cash flows (discounted cash flow), equity (intrinsic value) or profitability value. Each method has advantages and disadvantages. Discuss with a professional what the best option is for your business. This could be an accountant or a business consultant. An accurate valuation prevents disappointment later in the process and helps set a fair price that is attractive to both you and the buyer.

Sales Structure

A crucial step in the process of selling your business is determining the sales structure. This is when you decide how you want to sell your business and what form this transaction will take. You may choose a share sale, in which the buyer acquires all the shares of your business, or an asset-liability transaction, in which specific business assets are transferred separately. In addition, you should consider whether you prefer a full or partial sale, and whether you want to remain involved in the business after the sale. These decisions have important tax, legal and operational implications.

Letter of Intent

Once you have found the right counterparty, it is time to draft the Letter of Intent (LOI), also known as a letter of intent. An LOI is a preliminary document that outlines the basic terms and principles of the proposed transaction. In the LOI, you can establish such things as the proposed sale price, payment terms, any terms of the sale, and confidentiality agreements. Drafting an LOI helps both parties align their expectations and identify potential stumbling blocks early on. Although an LOI is usually not legally binding on the sale itself, certain clauses, such as confidentiality, may be binding. Be careful that the LOI does not turn out to be, in effect, already a purchase agreement by which you are bound. That depends entirely on the content of LOI. It is therefore advisable to seek legal advice when drafting an LOI. By doing so, you will lay a solid foundation for further negotiations.

Due Diligence

After reaching a preliminary agreement, comes the phase of due diligence. This involves buyers thoroughly investigating your company before making a final purchase. They want to understand finances, contracts, customer base and operational processes. Make sure all information is accurate and up-to-date so that this phase goes smoothly. Be transparent about any risks or challenges within the company; this builds trust with the buyer.

Negotiations

After the due diligence phase comes a crucial period: negotiations. This is the time when you and the potential buyer begin to discuss and refine the details of the transaction. Based on the findings from the due diligence, adjustments may be needed to the original terms of the LOI. It is important to be patient, flexible but also firm during this phase. Keep your original objectives in mind, but be prepared to listen to the buyer’s concerns and wishes.

Contracts

Work with a lawyer to draft all necessary sales contracts. This includes not only the purchase contract, but also any additional agreements such as non-compete agreements, indemnities, warranties or transition periods for personnel. Make sure all agreements are clearly defined to avoid misunderstandings. A well-drafted contract protects both you and the buyer and provides a clear basis for the transfer of ownership.

Close

Finalize the sale by signing all necessary documents and ensure a smooth transfer of ownership and responsibilities to the new owner. This includes informing customers, suppliers and employees of the change in ownership, if necessary. Selling your business is not an easy task, our attorneys are happy to advise you to make this process as smooth as possible. You can reach us by email, phone or by using the contact form at the bottom of this page.