Blog
Selling a business without advisers - can you risk it?
August 3rd 2011
Selling a business is a once in a lifetime event for many business owners. It is therefore understandable that any vendors attempting to embark on the process without advisors face an extremely steep and potentially treacherous learning curve. In this blog we focus on one of the many phases of the sale process which vendors may find particularly challenging if they try to go it alone.
Comparisons can be drawn at a peripheral level between selling a business and selling a house. However, there is a stark contrast between the technical intricacies of each of the processes involved.
For example, when you sell your house, the price eventually agreed between the parties is the amount which is paid at legal completion. Things are rarely this simple when it comes to selling a business.
Proceeds (or consideration) from the sale of a business are rarely received in full at completion. Usually the largest part of the consideration is payable at completion, but some may be payable on deferred terms.
Deferred consideration may be dependent upon the occurrence of specified future events or the achievement of identified financial targets.
Furthermore, the total consideration may be linked to the company having an agreed net asset value at completion, with more or less consideration being payable dependent on the excess above or shortfall below that figure.
The consideration may also be tied to the value of surplus cash or debt on a company’s balance sheet.
The net assets target can usually only be quantified accurately post completion. Suitable policies therefore need to be agreed between the parties regarding how these terms and figures should be defined and calculated and how any excess or shortfall should be settled. It is vital that the parties are clear on these matters to minimise the chance of any disagreement later on.
The negotiation of a suitable commercial price for a business – its calculation and payment terms is a critical stage in the sale process. Vendors may leave themselves at risk of being blinded by jargon and pressured into a potentially costly misunderstanding if they do not appoint advisors to lead them through this, and other equally complex stages of the sale process.
To make sure you receive a commercial price for your business on acceptable terms when you come to sell, make sure you seek specialist professional advice at an early stage.
