Ian Botwright, of Square Route Solutions Ltd.,
explains how to take the stress out of selling your business.


Apart from births, deaths and marriages, they say that two of the most traumatic events in an individual’s life are divorce and selling a home. For the entrepreneur however, who has spent up to 40 years building up a business there is one situation guaranteed to cause more headaches than these other events put together - selling their business. The reasons for sale are often complex and include retirement, divorce, partnership disagreements, ill health, lifestyle change, lack of family succession or any combination of these. Quite often the proceeds from the sale are an essential ingredient in the next stage of an individual’s life, yet in our experience so few directors and proprietors prepare adequately for this momentous event, resulting in either a prolonged marketing period or sales proceeds substantially below the market value.


This article addresses the first stage in planning for the sale of a business - preparation.

Preparation for a sale covers a range of issues which should be completed before approaching the market. The following main areas will have a direct influence on speed and likely outcome.

  • In some ways selling a business is like selling a house. Dirty, untidy locations do imply an inefficient undertaking and will put prospective purchases off. Has all waste material been disposed of? Attention to toilets, offices and workshop will work wonders. Is there somewhere for them to park? Have coffee and tea in clean mugs been arranged?

  • as a prospectus on the business been prepared? Does it cover all aspects of the financial position, both historical and forecasts, organisation structure, premises, c.v.’s for key members of staff, customers, suppliers, products, distribution methods, reason for sale and asking price? Have you included a marketing brochure and map? Who should the prospective purchaser talk to? Normally for reasons of confidentiality is it better either to allow contact at home or use a reputable firm of intermediaries to act on your behalf. Before sending any information to unknown contacts be sure to obtain a signed confidentiality undertaking first.

  • Has a good corporate lawyer been appointed before entering into any negotiations? A regular solicitor may be a personal friend but is this his field of specialisation? Remember this is your company and your deal. Areas of warranties and disclosures are a minefield, and usually represent 70% of a contract. If this area is not properly addressed you could find your agreed price being substantially reduced or the deal being made void after you have handed over control.

  • Discuss the sale with a qualified accountant or tax lawyer before marketing your business. Efficient tax planning may substantially reduce liability.

  • Discuss the sale with your fellow shareholders and obtain 100% agreement before you start. Many purchasers are only willing to acquire 100% of a company’s equity and will expect you to sort out problems with minorities before appointing solicitors. The existence of minorities can also seriously affect the price offered.

  • Look for all your legal documents - copy and file for easy reference. These should include: Memorandum and Articles; Shareholder Agreements; Service Agreements; HP/Leasing Contracts, Fire and Insurance Certificate and Policies: Property leases/ mortgage terms, employment contracts etc. No contract is too small to hold up completion so include vending and post machines as well.

  • Clean up and collect debtors - remember that a purchaser’s investigating accountants during their due diligence process will probably make provision against the value of debts in excess of 60 days unless it can clearly be proved that there are particular circumstances relating to older items such as performance retainer.

  • Settle any outstanding legal claims before marketing the business - remember purchasers are looking for security as well as profits. A generous allowance to cover the potential cost of claims will normally be deducted from the sales price until the actual outcome is finally known.

  • Review the value of your fixed assets in the Balance Sheet - are they realistic? Prepare a detailed schedule of original cost and written down value. Will these values stand up to professional scrutiny because it is quite likely to be part of the purchasers due diligence process.

  • Is the freehold held by you personally or via a pension fund? Is there a proper lease in place? Is the rent realistic? If you intend to sell the freehold with the business do get a current valuation from a reputable firm of Chartered Surveyors/Commercial Valuers.

  • Have you calculated potential redundancy liabilities? Remember that employment rights are unaffected by change in ownership and many purchasers insist on a reasonable provision for such liabilities in arriving at a price to be paid.

  • In the normal course of trading most accountants will prepare a set of audited accounts with the objective to minimise tax on behalf of their Clients. On approaching the sale date of a business it is important that the directors make the auditors aware of their intentions and ensure that accounts are prepared with a view to optimising pre-tax earnings, since goodwill will be regarded as a function of a realistic level of sustainable profits. Telling a purchaser about ‘hidden’ profits or assets is unlikely to encourage him to pay more for the business. Ensure that stocktakes are comprehensive; provisions are not excessive; year end cut offs are accurate and depreciation policies are realistic.

  • A handover is often a pre requisite with purchasers. This can be any period for 1 month to 1 year. Make sure that the existing directors are quite clear about how much time each is prepared to put into the business after sale, and the level of remuneration they are prepared to accept. The purchaser may not be offering the same terms as previously enjoyed.

  • Decide on your method of marketing. Talk to a number of professional intermediaries. What is their fee structure? What do they promise to do for their fees? Are references available? What would be their method of approach to marketing your business? If you are considering marketing your own business do the possible cost savings outweigh time, confidentiality and negotiating skill considerations?

This short article sets out to explain some of the basic first steps in marketing your business. The key to success lies in thorough preparation combined with realistic ambitions. Further articles in this series address timing, marketing and negotiations.

This article was published in Business MoneyFacts