Business advisory service

Company formation for small and medium enterprises

We understand that setting up a business in the UK can be a daunting process. We can make the start of your journey as easy as possible by assisting you throughout the company formation process.

Selling a business

Before putting your business up for sale, you should give careful consideration to your reasons for doing so. You will probably be asked about your reasons for selling a business by potential buyers, who will need to be comfortable with your motivation.

Selling a business, whether in part or wholly, may be the best way to achieve your objectives. You might, for instance, want to sell your business outright, leaving you with no financial or management involvement.

However, there may be a range of other exit routes which better suit your needs. If, for example, you want to retire but already have enough money, you could pass the business on to your children. Alternately, you could look into selling a business to your employees.

How to sell a business

There are various ways that could see you selling a business. The options available depend on factors like the type of business, size and sector. Most businesses are sold in a trade sale to another business - usually to one operating in the same or a related field.

Other options available to you could include:

• Finding a private-equity buyer
• A management or employee buyout. Perhaps with the help of a venture capital firm or bank loan
• Attracting a private investor

Is a sale realistic?

You can only sell your business if someone is prepared to pay for it. If you can't identify strong, substantive reasons why your business would make a good acquisition, it's likely to be difficult to find a buyer.

It usually pays to start planning a sale well in advance. This gives you time to groom the business and learn how to sell a business professionally and swiftly, fixing any issues which could dramatically affect its value and making it as attractive as possible to potential buyers.

When to sell your business

Selling a business at the right time can have a significant impact on the price you get for it. It's also wise to keep your plans confidential until the sale is imminent. This will prevent a negative reaction from customers and suppliers and eliminate unnecessary worry for your employees.

The state of your business is a more important factor. Aim to sell when profits are increasing and look likely to grow further. Consider the impact of sales cycles or seasonal fluctuations in your business - you might have fuller order books at a particular time of year.

Show strong financial performance

Planning well ahead will help you to ensure that your business has a financial record that attracts buyers. The first step is to ensure that your finances are in good order. This should always be the case, but planning to sell your business can put a spotlight on this area.

You will want to present your accounts as attractively as possible, as buyers usually prefer businesses that show increasing profits year on year. If possible, keep your financial performance reasonably stable throughout the year. Good realistic sales forecasts that are supported by evidence, will help to increase prospective buyers' confidence in your business. A full order book is always a good sign.

To maximise short-term profits, you can reduce longer-term investment. You might want to avoid expenses like advertising heavily or taking on new staff but avoid excessive cost-cutting. You need to maintain spending in essential areas, otherwise, the business could suffer and drive the price down.

Shareholder agreement 

Directors and shareholders of a company have different obligations and roles. While the directors will have more control, the shareholders may also want to be part of some decision making within the company. 

A shareholder agreement is a contract in which parties agree to use their votes in a certain way to regulate the way a company is run and to give some control to the shareholders. Shareholder agreements should always be drawn up by a professional solicitor to make sure they cover the necessary and important points. Creating your own shareholder agreement is not advisable and simply put not a good idea.   

What to look for in a shareholders agreement: 

Shareholders' rights of veto

Other parts of the agreement often provide that important decisions, whether or not they would ordinarily be taken by the directors or the shareholders, cannot be made unless all shareholders agree to them – so minority shareholders can veto them.

Issue and transfer of shares

Here, options include:

• Allowing minority shareholders a complete veto over any issue or transfer of shares
• Requiring the company (on an issue) and the owners of the shares (on a transfer) to offer the shares to existing shareholders, pro-rata to their holdings before they can be issued or transferred to anyone else, or in any other proportions.

If a pro-rata offer must be made, the agreement must provide a means of valuing the shares. This may be by reference to an expert, arbitrator or according to some formula in the agreement.

Rights to appoint directors

Shareholders' rights protect outside investors by allowing them to appoint a director to the board of your company, protecting their interests.

Dispute resolution

A shareholders agreement may contain a mechanism for resolving disputes. It may refer to a third party expert or arbitrator or a buy-out mechanism whereby, if a dispute occurs, one side buys out the shares of the other at a price determined in accordance with the agreement. It can even provide that, in the event of an unresolved dispute, the parties agree to vote to wind the company up.

The issue of which party buys out the other, and at what price, can be extremely difficult to negotiate. A shareholders agreement can become quite complex.

One solution is to say that one shareholder can offer his shares to the others at a price of his choosing. If they accept, they pay the price he has set. To stop the seller from setting an unrealistic price, the agreement may also provide that if the other side does not accept his offer, they become obliged to sell their shares to him. The seller will then be forced to buy the shares at the price he set. He will not want to set too high a price for his shares because he may end up having to buy their shares at that price himself.