7 Proven strategies to streamline your business sale.

• Posted onMay 1, 2024

The legal process of selling your business can be expensive and time-consuming. Many sales fall through. Why? Often because the goodwill and enthusiasm between buyer and seller at the outset is eroded by the legal process. Here, time is your enemy, so we have come up with some tips to ensure your sale goes through quickly and cost-effectively.

1. Ensure all key terms are agreed upon in the sale agreement.

Too often we see solicitors launch in to drafting the sale agreement without having first ensured that the parties agree. Time and again we see draft agreements which do not reflect what the other party thinks has been agreed. Your solicitor should run through the terms you have agreed (or think you have) and check that there are no gaps and no ambiguities.

Your solicitor should then, before anything else, speak to the other party’s solicitor and again run through what has been agreed and make sure that both parties are in actual agreement.

This is also an opportunity to agree some of the less crucial, but still important, terms. Goodwill between the parties is at a high (for now) so best use this time to agree as much as possible.

It is useful to then record the agreement in heads of agreement for future reference. If you are using a business sales consultant or agency, they should be able to prepare exhaustive heads of agreement. At WSP we like to get involved before this stage to work with the sales agency on the heads of agreement. Your agency will know the business well and what is motivating the buyer (see 3 below). This ensures that we can focus on what is important to the parties.

2. Two ways to structure the transaction.

There are two basic forms of sale structure: an asset sale where the company sells its business (and the company is, therefore, the seller and will receive the sale proceeds) or a share sale where the shareholders of the company sell their shares (and so the shareholders are the sellers, and they receive the sale proceeds). Sales by sole traders and partnerships will invariably be asset sales.

Nine times out of ten buyers prefer an asset sale and sellers prefer a share sale. The asset sale route is low risk for the buyers who can to a great extent “cherry pick” what assets they want and can leave many liabilities behind. The asset sale is, in legal terms, simpler and should complete more quickly and at less cost than a share sale.

However, sellers often prefer a share sale because there are usually tax advantages, but it is important to weigh up tax savings against the increased cost and time that a share sale will incur. And remember time is your enemy here: the longer the legal process takes, the more the risk of the deal falling through.

Above all the structure of the transaction MUST be thoroughly agreed before any further steps are taken.

3. Due diligence in a business sale.

Due diligence is the process by which buyers (and their solicitors and/or accountants) investigate the business they want to buy. This can be time-consuming. As we say in 1 above, the first thing we at WSP do is to phone the buyers’ solicitors and ensure that agreement had been reached but we also discuss the due diligence process and try to understand what the buyers are particularly interested in and concerned about so we can ensure that due diligence is properly focused and proportionate.

4. Pick up the phone!

A few short phone calls can save dozens of back-and-forth emails. If the structure and main terms of the transaction have been properly agreed (see 1 and 2 above) then we aim for the drafting process to be limited to a first draft (usually prepared by the buyer’s solicitor) and then this draft to be amended (“marked up”) by the seller’s solicitor. This should, therefore, clearly set out each party’s position. Then a meeting or a phone call between solicitors to agree as much as possible and a “snagging list” of those points that they cannot agree. Then the solicitors meet again with clients present and thrash through the snagging list until everything is agreed. Often, we will aim to hold the clients’ meeting straight after the solicitors’ meeting on the same day. This process avoids going into numerous drafts and redrafts.

5. Prioritise what is out of your control.

Often there will be things that need to be done by third parties to get the deal done. For example, the buyer may want the seller’s premises so landlord’s consent will usually be needed. The landlord (and their solicitors) will have no incentive to move things along quickly, so it is crucial to get them involved asap and chase up progress regularly. The same applies if there is a bank charge over some of the assets being sold which you need to get the bank to release; or employees to sign up to new employment terms; or a regulatory body needs to grant authorisation.

6. Refine the structure of the transaction.

The structure of the transaction and the length and complexity of the documents recording it should reflect the value of the transaction. We do not want to be receiving a 100-page share purchase agreement for the sale of a relatively small company for (say) £75,000. Buyers must be pragmatic and proportionate in what they expect a seller to sign up to. Again, this all comes down to that initial contact between the parties’ solicitors: to set the parameters of the transaction, who is doing what and when.

7. Getting your business sale over the line

Finally, it is important to avoid a transaction drifting and we have no qualms about chasing up solicitors, landlords and banks, etc. to ensure that your transaction is given the priority it deserves and gets over the line and completes on time and within budget. Here we see sales agents and consultants can play a vital role in chasing up progress and reminding the parties why the deal remains good for them. So, we always work closely with agents and consultants in this regard.

At WSP our proactive approach has helped 100s of clients in buying and selling businesses. We know this process can be stressful and so our number 1 priority is to provide sound sensible advice and get the deal done on the best terms reasonably possible.

If you are buying or selling a business, or you are an accountant or a business sales consultant or agent and want your clients to have good solid legal advice and support, then get in touch today at 01453 847200 or you can also use our quick online enquiry form.