How do you sell a small business?

Embarking on the journey to sell your business can be daunting. This guide breaks down each phase of the process, from planning your exit to signing on the dotted line and looks to give you a clear roadmap to help you navigate yourself through. Whether you’re motivated by new opportunities or a well-earned retirement, our detailed approach helps to ensure your objectives can be met and your business’s value is maximised.

Exit planning: Setting the stage for success

Average duration: 4-12 weeks

Before starting out, you may wish to explore the most appropriate path for yourself and ensure this is aligned with your wider plans outside of the company.

Selling your business often requires careful and detailed planning – the more time you give yourself to plan ahead, the better chance you have at achieving the best possible valuation and the quickest possible exit.

As part of this phase, it’s important to consider what your reasons for selling and objectives are and how you would prioritise these.

You also need to consider how your company is currently structured, both from an operational and financial perspective, and how these could be improved.

Once you’ve assessed all of the above, you’re then in a position to come up with a formal strategy to ensure your objectives can be met.

Valuing your Business: establishing a realistic expectation

Average duration: 2-4 weeks

A business valuation should be assessed by an experienced advisor using a realistic and facts-based approach, and then used to set a benchmark as to what ‘a sensible and reasonable offer’ for the business might be. 

This is a key phase to ensure your expectation of the value & price is matched with your advisor’s experience and understanding of the current market conditions. 

The result is purely for your information and isn’t something that should be advertised as your “asking price” if you took your business out to market.

If the result is lower than you expected/wanted, you’re then able to work with your advisor, to focus on any areas needing more attention and thereby look to enhance value by implementing those changes.

Market Preparation: Creating a Business Brochure

Average duration: 4-8 weeks

This phase involves drafting all the necessary marketing literature in preparation for placing the business onto the market. 

Buyer’s are interested in the numbers and accounts prepared by the business, but they also need some narrative to “colour in” those figures and give them an understanding as to how your business functions and what opportunities you’ve identified for growth.

For this phase, your advisor, alongwith with your input, will gain an understanding of your business and then draft a business sales prospectus (known as an Information Memorandum or “IM”), which provides commentary to potential buyers on the key features and USPs of the business and give them a detailed understanding of your background operations.

A strong and well presented IM can be key in bringing potential buyers, and more importantly, formal offers to the table.

Deal Origination: Finding Potential Buyers

Average duration: 1-2 weeks

There are various marketing approaches that can be undertaken when selling a business, and your advisor should set out a suitable combination of these in order to target and attract strong potential buyers who are relevant to your business. 

Marketing approaches should be handled carefully and confidentially and can a mixture of the following approaches:

• Open marketing: putting the business for sale on the open market and seeing what interest arises.

• Direct marketing: identifying specific target buyers and approaching them on your behalf.

Whichever approach you go with, essentially this phase is all about identifying, generating and eliciting interest from potential buyers.

Expressions of Interest & Indicative Offers: Gauging Serious Buyers

Average duration: 8-16 weeks

During the marketing exercise, you’re looking to achieve a number of expressions of interest, which your advisor will handle on your behalf.

The key element in this phase is ensuring that any expression of interest is credible.  Once your advisor has confirmed this, they can then deal with all queries and provision of additional information, along with facilitating discussions and inviting written offers for your consideration.

To set your expectations, the broad rule of thumb for this phase is you’re looking to achieve between 25-50 expressions of interest, sending out your IM to around 12-20 credible potential buyers with a view to receiving 2-4 formal offers.  This obviously can vary based on your marketing approach, but it does give you an indication on how this part of the process generally works.

Negotiation and Heads of Terms: Securing the Best Deal

Average duration: 4-6 weeks

Following receipt of indicative offers, hopefully from several parties, your advisor will work to refine, clarify and improve the price and terms of any proposals put forward.

Following acceptance of an offer, Heads of Terms (HOTs) are then drafted. HOTs are essentially a written summary of the principal terms agreed.

This is an essential document in ensuring there are no misunderstandings on the key terms of sale. Upon the agreement and signing of HOTs, it would be usual for you to grant exclusivity to that preferred purchaser and end negotiations with any other interested party for an agreed period of time.

Financial and Tax Due Diligence: leaving no stone unturned

Average duration: 8 – 16 weeks (undertaken in conjunction with phase 8)

Following HOTs being signed, the preferred purchaser will commence their Due Diligence procedures.

Due Diligence is a detailed investigation into the business’s finances, trade and operations (much like an in-depth audit), and will usually be undertaken by the purchaser’s solicitor and accountant.

We won’t sugar coat it, but this phase of the process can be pretty stressful and time consuming. During this phase, your advisor will primarily be assisting in the collation of information requested in conjunction with your accountant, liaising with your chosen solicitor and handling any queries that may arise from that information to minimise the stressful load on you, as the seller.

Legal Agreements: Signing on the dotted line

Average duration: 8 – 16 weeks (undertaken in conjunction with phase 7)

The process of selling your business ultimately will be condensed into a fairly weighty legal document, generally known as a Sale & Purchase Agreement (SPA), which is drafted and reviewed by a Corporate Lawyer. This document, which is accompanied by a number of other supplementary documentation, can be anything from 50 to 100 pages long.

Your advisor’s role for this final phase is to liaise with the legal advisors.  They will review the financial elements of the SPA, in order to ensure that the deal has been accurately reflected, confirm it’s written in a way that will allow you to utilise any tax reliefs available on the proceeds, in conjunction with your accountant, and limiting, as much as possible, any exposure to warranties given as to the condition of the business.

Finally, your advisor should project manage the entire process – keeping everyone on track and focused on that end goal.

Selling your business is a complex, multi-step process that requires planning, strategic execution, and a clear focus on your objectives. By following our eight step process, you’ll be well-equipped to handle each stage, from exit planning and valuation to marketing, negotiations, and final legalities. 

We specialise in supporting business owners, such as yourself, through this process, allowing you to confidently transition out of the business, ensuring it remains in capable hands whilst moving forward to your next chapter. 

Remember, preparation, a touch of patience and a consistent supply of tea and cake can go a long way in achieving your desired outcome.

If you’d like to understand this process further or would like us to support you on this journey, please get in touch.