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How do you sell a business in the UK? You get the business ready, find a buyer and agree a price, record the main terms in heads of terms, answer the buyer’s due diligence, and then negotiate and sign a sale agreement and get paid at completion. For an owner-managed business, the part from agreed heads of terms to completion usually takes two to three months, although the preparation before that can take much longer.
Most owners are selling for the first time, while the buyer has often done it before, and that difference shows up in the detail. The headline price gets most of the attention, but how much of it you’re paid on the day, what you’re promising about the business and what you can be asked to pay back afterwards matter just as much. This guide goes through a sale in the order it usually happens, with links to the pages where I’ve gone into each part in more detail.
Getting the business ready
It’s much cheaper to fix the things a buyer will find before a buyer is involved. A buyer’s solicitor will look at who owns the shares and whether the company’s records are complete, whether the main customer and supplier contracts are in writing and can survive a change of owner, whether the company actually owns its website, software and brand, the employment contracts and any restrictive covenants, and the lease. Gaps in any of those can be fixed in your own time a year before a sale, but once you’ve accepted an offer they become reasons to reduce the price, hold money back or ask you for an indemnity.
I’ve covered this on my exit planning page, and if your sale is a year or more away an exit readiness review goes through the business the way a buyer’s solicitor would, so you know what needs doing. My free due diligence questionnaire gives you a good idea of what you’ll be asked.
It’s also worth speaking to your accountant early about tax, as some of the planning (on reliefs, on taking out cash or property, or on the structure of the group) needs to happen before a buyer is involved. Tax adviser Omar Aswat has written a guest article on the tax side of selling your company.
Finding a buyer and working out the price
Buyers come from business brokers, corporate finance advisers, online marketplaces and direct approaches, and quite often from people the owner already knows: a competitor, a supplier, a customer or the management team. A sale to your own managers works differently from a sale to an outsider, which I’ve explained on my management buy-outs page.
Valuation is a job for your accountant, a broker or a corporate finance adviser rather than a solicitor. Smaller businesses are often valued as a multiple of profit, or of recurring fees in sectors like accountancy and financial services, and the figure depends heavily on how much of the business depends on you personally. I’ve written about that in how much is my business worth?
Before you share detailed information, ask the buyer to sign a non-disclosure agreement, and think about when and how you’ll tell your staff. Most owners keep a sale confidential until it’s close to completion, for good reasons, but staff do sometimes find out, so it helps to have decided what you’d say. I’ve written about how to tell employees you’re selling the business.
Heads of terms
Once a price is agreed in principle, the main terms are written down in heads of terms. They cover the price and how it’s paid, whether it’s a sale of the shares or the assets, any conditions, the timetable, and usually a period of exclusivity during which you agree not to negotiate with anyone else. Most of the document isn’t legally binding, but it sets the baseline for everything that follows, and anything left out tends to become something you have to ask for later, once you’ve agreed not to talk to other buyers.
My own view is that time spent on heads of terms at the earliest possible stage is time well spent, because it’s much easier to agree points while everyone is fresh and happy with the deal than after months of negotiation. There’s more on my heads of terms page, and on partial sales in selling 51% of my company but keeping the rest.
Selling the shares or the assets
If the business is run through a limited company, you can sell the shares in the company or the company can sell its assets. On a share sale the buyer takes the company with its whole history, and the document is a share purchase agreement. On an asset sale the buyer picks what it wants and the company keeps the rest, including its liabilities, and the document is an asset purchase agreement. Contracts then have to be transferred one by one, and the employees normally move to the buyer under TUPE on their existing terms.
Sellers usually prefer a share sale for tax reasons, as the proceeds come to you directly rather than to the company, which then has to pay them out to you. Buyers often prefer assets because they leave the history behind. Which one you do is usually settled in the heads of terms, and it’s worth your accountant confirming the tax on each before you agree.
How the price is paid
The price is rarely one figure paid on one day. Most deals are priced on a cash free, debt free basis, adjusted for the cash, debt and working capital actually in the business at completion. Part of the price is often deferred, paid in instalments or tied to how the business performs after the sale through an earn-out.
Anything not paid at completion is a debt owed to you by someone who now controls the business you’ve sold, so you should ask for security for it and for clear terms on what happens if a payment is missed. If part of the price depends on future profits, the agreement needs to say exactly how they’re calculated and what the buyer can and can’t charge against them. I’ve gone through the options on my page about earn-outs and deferred consideration.
Due diligence
Once heads of terms are signed, the buyer investigates the business. Its accountants look at the financial and tax side, and its solicitor sends a long list of legal questions and document requests. You (or someone you trust in the business) upload what’s asked for to a data room, as you know where things are, and I review the replies before the buyer sees them.
That review matters, because a careless answer can turn into a warranty claim later, and a document uploaded with no explanation tends to lead to more questions. Due diligence is also where the time goes on most sales, and it’s much quicker for sellers who prepared in advance. My page on due diligence for sellers explains how it works.
The sale agreement, warranties and disclosure
The sale agreement sets out the price and how it’s paid, the warranties you give about the business, the limits on what the buyer can claim from you afterwards, and the restrictions on what you can do once you’ve sold. The warranties are statements about the business (that the accounts are accurate, the tax has been paid, there are no disputes and so on), and if one turns out to be untrue the buyer can claim for its loss.
Your protection is the disclosure letter, which sets out the ways in which the warranties aren’t true. Anything properly disclosed generally can’t be claimed for, so it needs preparing carefully and shouldn’t be left to the last week. You’ll also want sensible limits on claims, meaning a cap, a time limit and a minimum size, and those limits won’t protect anyone who has been dishonest. My page on warranties, indemnities and disclosure letters goes into more detail.
The buyer will want restrictive covenants stopping you from competing, approaching customers or taking staff for a period after the sale. They need to be reasonable to be enforceable, and if there’s anything you might still want to do, it should be carved out now.
Staying on, staff and premises
Many buyers want the seller to stay on for a handover, as an employee or a consultant, and an earn-out often depends on it. It’s worth being realistic about how long you’ll want to work for someone else, which I’ve written about in should the seller stay on after completion?
On an asset sale there’s a legal duty to inform, and sometimes consult, the employees who will transfer, so the timing needs planning. If the business has premises, the landlord’s consent is often needed, and if you own the building personally or through a pension scheme there are extra points to deal with, which I’ve covered in can I sell my company if the lease is in my name or my SIPP owns the building?
Completion and afterwards
At completion the documents are signed, the price is paid and ownership passes to the buyer. These days it’s usually done electronically, with the money passing between the solicitors’ client accounts. Your accountant will deal with the filings at Companies House afterwards.
The sale isn’t quite over at completion, as you’ll want to keep a note of when deferred payments are due and what the buyer has to provide to calculate any earn-out, and of when the period for warranty claims ends. If you’re staying on, the terms of your role and the restrictive covenants will run alongside that.
How long it takes and what it costs
Once heads of terms are agreed, a sale usually takes two to three months, and sometimes longer. The usual causes of delay are slow due diligence replies, the buyer’s funding and a landlord’s consent. Sales that need FCA approval usually take around six months, as I’ve explained on my page about selling a financial services business.
Your costs will normally include your solicitor, your accountant and any broker or corporate finance adviser, and I’ve written about how much it costs to sell a business. I work on fixed fees agreed in writing before I start. The fee depends on the size of the deal and how much work is involved. On a sale or purchase between £500,000 and £5m it’s usually between about 1% and 3% of the price, and the percentage falls as the deal gets bigger. Most full sales and purchases start at around £10,000 plus VAT. Franchise resales, client bank deals and most management buy-outs usually cost less, as there’s less to negotiate. Property work, subsidiaries, anything under another country’s law, warranty and indemnity insurance and escrow arrangements are outside my standard scope and quoted separately.
What to do now
If a sale is a year or two away, find out what a buyer’s solicitor would find and start fixing it, and talk to your accountant about tax before anything else. If you’ve had an approach or an offer, don’t sign heads of terms until someone has read them with you, and agree how long any exclusivity lasts. If you’re already in exclusivity, start gathering the documents for due diligence now, as that’s the stage that most often holds a sale up.
There’s a longer version of this in my free ebook, Selling Your Business. I act for owners selling businesses worth between £250,000 and £10m, from heads of terms to completion, and you’ll deal with me throughout. Get in touch if you need some help.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation. Law correct as at .
