1. Overview

How to close a commercial deal is covered in this tutorial. It outlines what factors to consider when comparing bids and how to approach talks with possible purchasers.

It also addresses the checks your buyer will need to make and the conclusion of the selling agreement.

While pricing is crucial when selling, there are several other aspects to take into account, such as the effects on employees and taxes.

2.  Preparing to sell your business

You must take a few steps when selling your company to ensure a smooth transaction. Typical steps involve: assessing your company's worth; getting ready to sell it by making improvements to its value; and getting early tax advice to identify potential problems that could affect the deal later on—this is crucial if you want to minimize your tax burden); finding potential buyers; marketing your company; arranging meetings and negotiations with potential buyers; concluding legal due diligence with the buyer; finalizing the sale agreement and transferring ownership.

Putting your company in order before the sale is worthwhile and should take some time. To get your finances in order, you may do your part by lowering expenses, debt, and surplus inventory.

There are several approaches to company valuation. Consulting a company consultant or your accountant for specialized assistance is advised. They will be able to assist you in obtaining a reasonable appraisal and provide advice on a suitable technique of valuation. They will also be able to assist you in finding possible customers and promoting your company to them.

3. Initial meetings with possible purchasers

Set up early encounters with prospective purchasers to gauge their level of interest. It matters how you handle bargaining with prospective purchasers.

The objective is to establish a rapport with potential purchasers and talk about some of the important concerns.

You could want to engage your lawyer to draft a non-disclosure agreement that would be signed by potential purchasers. The agreement guarantees that information about your company stays private.

Thereafter, it could be suitable to let interested parties see your property. This might accelerate the sales process, but you might want to hold off on doing this until you've gotten indicative bids since confidentiality is important and you might not want to provide too much information just yet.

financial data

You'll need to provide prospective purchasers precise financial data, such as estimates for the next year and final or audited accounts if applicable, so they can make an offer.

It is concerning when commercially sensitive financial data is disclosed, potentially even to a rival. Consult your advisors for advice on how to approach this.

Examine advice on selecting and collaborating with an accountant.

It might also be beneficial to provide prospective purchasers with a company appraisal created in collaboration with your advisors. They'll know what to expect from you thanks to this.

Following your first discussions, you should invite potential purchasers to submit written indicative bids that contain the following details: the amount they are willing to pay; the transaction structure they envision; and the anticipated completion date of the sale.

4. How the deal is structured

While evaluating proposals for a firm, price is just one aspect to take into account. The prospective buyer's suggested timeline for closing the purchase, for instance, is crucial since a protracted sale might hurt your company.

Additionally, you must confirm that the potential buyer can pay the amount you are proposing. If they are unable to get funding, the offer will be meaningless. Check for evidence of their financial stability, such as share certificates, mortgage or loan agreements, or personal savings records.

Payment

Think about the arrangement of the transaction. Although a one-time cash payment would seem like the best choice, it might not be the most tax-efficient one, and you could have to accept a delayed payment of some kind.

Offers including both cash and stock in the buyer's company are possible. However, receiving shares is only truly worthwhile if the firm is publicly traded. Additionally, your buyer may forbid you from selling your shares for a while.

Please confirm whether postponed payments are guaranteed if they are offered to you. By agreeing to an earn-out, which is a future payment contingent on the company's success in the future, buyers may choose to reduce their risk.

Earn-outs have the potential to boost your ultimate payout, but there are dangers involved, so you may not get as much as you had hoped. By remaining involved as management, you will have the ability to affect how well the performance objectives are met. But once you sell the company, you can decide you would rather not be engaged with it anymore.

Charges

Recall that when you sell your company, you probably will have to pay capital gains tax. To learn more about maximizing potential reliefs and reducing your capital gains tax responsibilities, speak with your CPA.

Examine advice on selecting and collaborating with an accountant.

5. Your obligations and liabilities

The assumption of responsibility for any company liabilities, including those related to workers, unpaid debts, taxes, and VAT, will be a crucial component of any offer.

Your buyer may probably want you to provide guarantees and indemnities to safeguard them against potential liabilities in addition to peace of mind about what they've purchased.

Guarantees

Warranties provide official legal verification of the accuracy of specific information about the company transaction. For instance, you may need to vouch for the veracity of the assets you say you hold and the accuracy of the financial data you provide to the buyer. Should the information turn out to be inaccurate later on, the buyer could be able to claim you.

Compensation

Promises to compensate the buyer for any damages brought on by certain future occurrences are known as indemnities. For instance, you could be required to hold the purchase harmless from fines stemming from VAT or tax investigations into accounts prepared before the buyer assumes control of the firm.

Making these promises might enable you to negotiate a better deal. However, you must be obvious about what you stand to lose. Your advisors should always carefully review any warranties and indemnities before you commit to them.

Staff responsibilities: You should also think about how a contract will affect your personnel. For example, you should acquire an agreement saying that there won't be any layoffs for a certain amount of time. Additionally, you want to review your legal obligations to employees under the TUPE (Transfer of Undertakings (Protection of Employment) Regulations).

6. Choosing a buyer and engaging in negotiations

You may reduce the field and begin negotiating with the possible buyers you've shortlisted after you clearly understand all the bids on the table. Your advisor may guide the conversation and provide you guidance at every turn.

Once you've determined who your ideal customer is, it's critical to build a trustworthy connection. It would be advisable not to negotiate higher terms at this stage; instead, focus on discussing the transaction with this candidate. Prior to accepting any offer, please ensure you fully comprehend all aspects of it, including any obligations you might assume.

Make a formal contract.

The buyer and you must next agree on the Heads of Terms, which are sometimes referred to as a "letter of intent" or "Heads of Agreement." This paper lays forth the main features of the agreement. For instance, a list of assets, information about contracts and employee duties, what the buyer has agreed to purchase (such as shares or assets), the payment structure (i.e., how and when they will pay), and who will cover the expenses are all examples of this.

It serves as a written summary of the main points of your contract that you may provide to your accountants or attorneys. Additionally, it could provide a time of exclusivity during which you are prohibited from negotiating with anyone else. Your expert advisors will assist you in creating this.

Certain provisions of the agreement could be enforceable by law; for example, it might specify who would pay the attorneys' costs if one side withdraws.

When you've completed this, you should let other interested parties know as well.

7. Making a thorough investigation

Following the initial terms of the sale, your buyer will examine the commercial components of your company, including contracts, employees, and important clients, to determine whether the statements you have made about the company are true. We call this procedure "due diligence."

Please begin due diligence once you and the buyer have reached an agreement on the price and conditions. Although every deal is unique, the inquiry time is customizable and often runs concurrently with the legal procedure. By working together as much as possible, you and your team can expedite the process.

The original documents will likely need to be reviewed by your buyer and their advisors on your company's premises, so attempt to make sure as much of the work is done off-site as feasible. Controlling the process is necessary to prevent it from being used as a pretext for renegotiating the agreement.

The following topics are likely to be covered by the due diligence process:

•the company's historical and projected financial performance; 

•accounts;

•the value of real estate and other assets;

•legal and tax compliance; 

•any pending litigation against the company; 

•significant customer contracts; and 

•intellectual property protection.

The last version of the sale agreement

The selling agreement should be finalized by you and your advisors as the due diligence process draws to an end. The specifics of the sale will be included here, most of which ought to have been included in the heads of terms. Both parties will have had to make concessions to produce a final document that is acceptable. To make sure the final agreement is acceptable and doesn't include any surprises concerning your future responsibilities, you should continue to communicate with all parties involved.

Your advisors should make sure you comprehend the conditions of the contract you are signing in its entirety, as well as the full scope of any warranties and indemnities you have accepted.

Go through our guide. completing a buyout of the workforce.