When a formal transfer of business ownership takes place, there is plenty of legal and non-legal documentation involved. Taking steps to understand the various documents you will encounter when selling a business can help vendors and buyers to feel fully prepared. The last thing any party wants is to overlook an important detail or misunderstand the purpose of a document such as the Heads of Terms (HoT) agreement.
If you are a reader of business books or listener of business podcasts, you may also see this document referred to as a Letter of Intent or a Memorandum of Understanding. Not strictly exactly the same, but they broadly serve the same purpose in other countries and are becoming common language in the UK. As we are in the UK, we’ll be using Heads of Terms or HoT for short.
In this blog we’ll explain why the HoT is a significant part of every business sale, outline what the document should include, and how to check if any parts of the document are legally binding.
Let’s start with the basics…
In the initial stages of a business sale, it is common practice to set out the terms of agreement between the parties involved. HoT is a formal way of documenting the vendor’s decision to sell and the buyer’s agreement in principle to purchase. HoT is not intended to cover the finer details of the business sale. Those come later on in proceedings. The HoT outlines the key terms agreed between the parties, prior to execution of the sale process. It sets the stage for negotiation, due diligence, and the final contract agreement.
When HoT is drawn up and signed it demonstrates a commitment from all parties to proceed with the transaction. The document brings clarity and structure to the early part of a business sale and will continue to be of value as legal processes begin.
Throughout negotiations and due diligence, representatives of the parties involved in the transaction will refer back to the HoT to guide discussions and keep the sale process on track. For example, acting as business broker for a vendor, we would use the HoT to inform discussions about the timing and structure of the sale, and a solicitor would use it as a guide to produce the final contract agreement.
The HoT should set out the most important elements of the deal that have been agreed between parties. It should never contain anything surprising.
For a share sale, the Heads of Terms might cover:
For support producing a Heads of Terms agreement for your business sale, get in touch to find your local, trusted Business Partnership business broker.
Some elements of the HoT may be legally binding, but generally the document is not considered a formal legal document. The key term you are looking for here is ‘Subject to contract’. If you see these words then the clause they refer to is not legally binding.
A lot can happen between signing the HoT and deal completion. When a buyer enters due diligence, there is always a chance they will discover information that alters their perception of the business, leading them to renegotiate the terms of the deal.
However, parties may agree for certain clauses to be legally binding. In our experience brokering business sales, there are two clear exceptions, designed to protect the integrity and reputation of the selling business. These enforceable clauses usually relate to confidentiality and communication.
Confidentiality – to protect the intellectual property of the selling business, e.g. Customer information.
Communication – to refrain the buying team from contacting employees, suppliers or customers or disclose any information about the deal before the deal is complete.
If a buyer finds issues during diligence, they have every right to request renegotiation. At this stage the vendor can choose to enter into the process or walk away without penalty.
Potential reasons for renegotiation include:
Each of these is a genuine issue encountered by our business brokers when supporting the sale of a business. None of these issues could have been foreseen prior to Heads of Terms being agreed, and this is by no means an exhaustive list.
The above list highlights why it is essential to do your homework prior to putting your business on the market. Taking action to understand the documentation and processes involved in selling your business will build your confidence and help you feel properly prepared for the journey.
It’s always beneficial to have the right support and guidance to help you prepare and execute a successful sale or purchase, especially if you have queries over whether a document is legally binding or not. If you’re not sure how or where to start, your local business broker is here to help. Find yours here.
We’re delighted to welcome our new Business Partnership broker and franchisee to the team. Geoffrey Kwateng (Geoff to his friends) takes responsibility for the areas of Crawley, Guildford and Reigate(Opens new window).
A qualified Biomedical Scientist, Geoff began his career as an assistant at one of the biggest laboratories in the UK. He became General Manager for a laboratory in Guildford, Surrey, and from there became involved in consultancy work which led him to start his own business – Fusion Diagnostic Solutions.
If you own a business in a GU or RH postcode and are planning to sell, working with Geoff could provide the impetus and support you need to achieve your plans. Read our Q&A with Geoff to find out all about him and his skills in brokering business sales.
I live in the Guildford area and I used to live close to Reigate, so I know the towns and the businesses in these areas really well. We’re blessed with lots of sci-tech, research and development, IT, manufacturing, healthcare and pharmaceutical businesses, which is my personal area of expertise and my focus within the Business Partnership team.
I always knew I wanted to start something for myself. Consultancy found me through my work at the lab where I enjoyed helping clients with their strategic projects. Clients from the lab asked for my help with their business planning and operational development.
I founded Fusion Diagnostic Solutions in 2023 and many of the clients I worked with were thinking about selling. This led me to do a lot of research into exit planning, mergers and acquisitions. I found it really interesting and decided it was an area I wanted to pursue, brokering my first M&A deal in the healthcare sector within two and a half months. When I came across Business Partnership I thought the business broker role would be the perfect complement to my strategic consultancy skills.
It was a big achievement and one I’m proud of. I can’t promise every business sale will be that quick, but I’ll do my best to offer the same level of support to every client I work with.
Years in the lab and in consultancy have developed skills in interpreting complex data, partnership working, process and performance optimisation, and driving strategic improvement. My strengths in understanding management accounts and knowledge of how to market a business also come into play. I’m a strong communicator and good at building relationships. When you work in a niche market like I have, you have to know how to connect with others and leverage your contacts to grow. I just love getting to know people!
The most rewarding thing is being able to make a difference. The work we do has a powerful impact on other people’s lives. When an owner sells their business there’s something bigger waiting for them, whether that’s retirement or another form of financial freedom. Everyone has their own aspirations and I’m happy to be here to help them achieve them and get to that next stage of life.
I’m really excited to get started and get out and about meeting local business owners. I’ve got my marketing plans in place and you’ll be hearing a lot from me on LinkedIn. If you see me at a networking event or come across my posts on LinkedIn, please introduce yourself and say Hello!
The Business Partnership team is brimming with experience and business acumen. The partners I have met so far have been really friendly and helpful and I’ve been very impressed with the thorough training and onboarding experience.
I’m here to help and guide you to secure the best possible outcome for your business exit or purchase. It’s easy to work with me. Get in touch on 07955 541428, email geoff.kwateng@business-partnership.com or connect with me on LinkedIn.
Welcome to the team Geoff!
https://www.business-partnership.com/offices/guildford/
It’s not uncommon to be considering the future of your business at this time of year. As a new year dawns, the thought of ‘do I really want to still be doing this next year’ might well be niggling at the back of your mind. If you’re approaching retirement or your health is a concern, you might feel under a little more pressure to make progress and get the ball rolling in 2025. Deciding to sell your business is a huge decision and achieving both maximum profit, favourable terms and the best outcomes for everyone involved are always our objectives.
Current challenging market conditions mean selling a business is not without its risks, so if you are thinking about selling in 2025, improving sellability should be your focus. Read on for some top tips to help prepare your strategy, make your business attractive to buyers, and put it in the best possible position to sell.
Where do you see yourself having sold your business? What are your personal and financial goals from the sale. These goals are your starting point and the motivators you should keep in mind throughout what can be a long, drawn-out business sale process. In the case of joint or multiple owners, your individual Whys could become a sticking point during negotiations. Aligning expectations now will help you over the months to come.
It’s not unusual for a lone vendor to feel at a loss once they’ve sold, so make plans now to enjoy what comes next and prepare yourself mentally. Of course, selling your business doesn’t always mean you have to leave after signing on the dotted line. Many owners choose to remain in the business as a consultant or in another capacity under the terms of a deal.
Is your business fit for its future owner? You may feel ready to sell on a personal level, but if selling is something you have only been considering for a few weeks or months, there may be work ahead to prepare your business for sale. Developing staff to step up and replace you, growing your customer base to add value to the bottom line, refining processes and reviewing governance are areas to consider.
Write a list of all the positive attributes of your business and the reasons why a buyer might find these an attractive proposition. This will assist you in the future when positioning your business or negotiating the terms of a deal.
We’ve lost count of the number of vendors who regret not maintaining up-to-date business records prior to due diligence. If you want to prepare thoroughly, start reviewing key financial, commercial and people records before you engage in the sale process. It will speed up due diligence, eliminate errors, and showcase a well-managed business to interested buyers.
Are there any current internal issues that may cause problems in a future sale? Identifying and resolving these now will help reduce the risks for interested buyers. Think about key employees due to retire, contract negotiations, ongoing legal action or client/supplier disputes. Make sure to document every action to provide evidence during due diligence, if required.
As mentioned in point two, identifying the areas in which you might be able to add value to your business will help you achieve the most profitable outcome. Recurring revenue streams, healthy cashflow, secure contracts, and a scalable business model are all attractive to buyers. If you’re not sure how or where to start, your local business broker can help you. Find yours here.
In our experience, it is very much a business buyer’s market. In 2024, deals took longer to complete due to buyers’ cautiousness and the complexities of each sale. Data from Branta confirms that the average deal duration in the UK is taking 258 days, and this trend looks set to continue in 2025. With this in mind, keep an eye on whether businesses like yours are selling on the open market or to private buyers. Take time to understand the economic factors that affect a sale (e.g. interest rates, obtaining finance, regulation) to inform your decisions and time your sale wisely.
The financial impact of increasing capital gains tax, rising employer national insurance contributions and minimum wage rates could represent significant costs to you and your business. This in turn can affect business sellability and the profit you take home. From both a vendor and buyer perspective, tax implications are a consideration in every business sale, but they shouldn’t be the primary driver. Focus on increasing the quality of your business to attract a buyer and you are more likely to receive offers that are higher than any tax you were looking to mitigate.
We’ve covered lots of things to think about before you put your business on the market, and appointing a business broker can help you with so much more. From reaching a realistic sale value and marketing your business through an extended network, to devising detailed deal structures, negotiating terms, and providing calm reassurance. Get in touch to access our Business Partnership network of local, trusted business brokers to discuss options for selling your business in 2025.
You’re a confident, successful entrepreneur, a skilled negotiator, and nobody knows your business like you do. When the time is right to sell your business you intend to be heavily involved in the selling process. The big question is do you enlist the services of a business broker or decide to approach buyers directly?
There are many reasons why an owner might think they are best placed to sell their business. In fact we hear this one fairly often. You might be put off by a broker’s fees, not being in complete control of the sale process, or fearful that confidential information might leak out to the press, employees or customers. You may believe that selling a small business will be a fairly easy task, especially if you already have a buyer in mind, e.g. a supplier or competitor, but years of managing a business can’t prepare you for the complexities of a company sale.
These are all valid reasons, but in choosing to go it alone you are leaving yourself open to certain risks. In this post we’ll discuss the risks of selling your business without an agent and how the support of a business broker can guide you through them.
Business sales are rarely straightforward. Most involve solicitors, accountants and surveyors as standard, while others require input from landlords, local authorities and other subject matter experts. Then there’s the legal jargon and where to start with due diligence. Part of a broker’s job is to explain what is likely to happen at each stage of the sale process and explain the terminology involved, so the vendor feels confident throughout.
It’s very common for there to be a mismatch between vendor and buyer valuations, which can hinder progress. A broker has the skills to smooth and mediate this process, helping each party to understand the true value in the business. If one party won’t budge on their valuation, a broker may be able to negotiate deal terms that are acceptable to both sides.
Ready to get a realistic valuation of your business? Get in touch here.
If a business sale is straightforward it could go through in a matter of weeks, however some business sales take years to complete. Finding the right buyer, negotiating terms, complex due diligence, a buyer pulling out – do you have the energy and motivation to navigate these hurdles over an extended period of time?
Vendors are often surprised how lengthy and complex the process is and how much it takes out of you. Selling a business is a full-time job and it’s nigh on impossible to manage a growing business at the same time.
Every business sale presents unexpected challenges. A surprise reduced offer, legal loopholes, tiny details and buyer demands you didn’t account for. A broker uses their intuition and experience of selling businesses to identify potential pitfalls and challenges before they become problems. They can filter out buyers who aren’t genuine and manage negotiations with serial investors. If you went into negotiations with a professional investor who has purchased multiple businesses on your own, how do you think you would fair?
We’re all familiar with Rightmove, Zoopla and Purple Bricks. When it comes to selling your home these are trusted household names. But would you know how to write the sales particulars for a business for sale or how to write and post an ad to find your ideal buyer? A broker has access to networks allowing vendors to reach people who are already interested in acquiring businesses. This can create competition between interested buyers, potentially leading to higher offers.
Find your local Business Partnership office to connect with a broker who is experienced in your sector.
What will you say when you meet an interested buyer for the first time? Will you be able to leave your emotions and personal connection to your business behind. A broker will plan the conversation carefully to present you and your business in the best possible light. They may structure the conversation so that you’re not involved in the more emotive parts, maintaining professionalism, objectivity and neutrality at all times.
If you want to, you can sell your business without using the services of an agent or broker. Selling direct may save on fees, but the cost of the additional risks you take may outweigh those savings.
A trusted, reliable broker who has experience of business sales in your sector is worth their weight in gold. Acting as an intermediary they will protect your personal and business interests, find your ideal buyer, and showcase your company in the best light. As they guide you through the sale process, their skills in valuation, negotiation, problem solving and managing buyer expectations will show their worth. In choosing not to use a business broker to sell your business, you could miss a minor detail that turns out to be critical to the deal and impact your future plans. Is this a risk you are willing to take?
To avoid unnecessary risk when selling your business, talk to Business Partnership today. Your business broker will guide and support you every step of the way from initial valuation right through to signing on the dotted line.
Deciding to sell your business is a big decision, both in terms of being mentally ready to move on to pastures new, and making sure you get the right deal for you. Years of hard work and dedication come down to this. This guide will look at some of the factors you need to consider, how to navigate the complexities of the sale process, and how you can make sure you do avoid the common pitfalls sellers can fall foul of.
Here’s how you can give yourself the best chance of achieving a smooth and successful transaction.
One of the biggest mistakes business owners make is not preparing adequately for the sale. This involves more than just deciding to sell; it requires detailed planning and organisation. Begin by ensuring your financial records are in order and up to date. Prospective buyers will scrutinise your financial health, and any discrepancies can derail the sale.
Additionally, gather all relevant documents, including contracts, leases, intellectual property records and statutory compliance records. Also question whether preparation needs to extend to your team as well – consider when the best time is to inform them that you’re selling and which team members need to know at which time. It’s vital to maintain operational stability, but there will likely be certain people who need to be involved to help you prepare from an early stage depending on the size of your business.
Overestimating the value of your business is a common pitfall that can lead to prolonged sale processes and frustration. It’s crucial to have a realistic valuation.
Get a free valuation today here from us.
We can help you assess various factors, including market conditions, financial performance, and growth potential. Securing the right deal is difficult, and it all starts by making sure that the asking price is right.
The sale process can be lengthy and demanding, often taking several months to find a buyer. During this period, it’s vital to continue running your business as usual. Neglecting day-to-day operations can lead to a decline in performance, which won’t help you attract potential buyers. Additionally, even after a potential offer for your business is accepted, it’s crucial to maintain focus and keep driving the business forward until the transaction has completed.
Have a think to see if you can delegate any tasks to colleagues whilst you focus on preparing the business for sale and the sale process.
Not all interested parties are suitable buyers. It’s essential to qualify potential buyers to ensure they have the financial capability and genuine interest in acquiring your business. Qualifying potential buyers saves time and money whilst making sure that you can give sufficient attention to the right potential buyers.
You can vet interested parties by requesting proof of funds and holding preliminary discussions to assess their seriousness and capabilities. You need to try and avoid any potential deal falling through down the line, especially if it’s taken months of work to get to that point. Vet potential buyers as early as possible.
Maintaining confidentiality throughout the sale process is crucial. Premature disclosure of your intention to sell can unsettle employees, suppliers, and customers, potentially harming your business. Again this comes back to taking the time to consider when the right time is to advise specific employees, as well as relevant stakeholders – which could be waiting until after the sale in some circumstances.
Negotiation is a critical component of the sale process, alongside making sure you’re actually negotiating with the right buyer in the first place.
It pays to get a professional in your corner as soon as possible to deal with both of these aspects – the search for your ideal buyer and the negotiation. Not to mention the rest of the complexities of the sale process.
Sell your business with Business Partnership.
At Business Partnership we can provide you with a free valuation today.
There’s never any obligation and it’s always confidential. Find out what we could achieve for you and how we can help you every step of the way.
Call our team on 01606 535 024 or find your local contact here.
Selling your business is a significant milestone. It’s something to celebrate but also something that can be incredibly nerve-wracking – especially if it’s your main nest egg. The key is to prepare as thoroughly as you can before you start negotiations with potential buyers. Then you will be ready to navigate the negotiation process and realise the best possible sale price.
Negotiating the sale price of your business is a journey in itself, but with the right approach, you can maximise your returns and walk away feeling satisfied with the deal and ready for the next chapter of your life.
Here are the key elements that will lead you to success when negotiating your business’ sale price.
Before you start any negotiation, you need to know 2 things:
What you need to sell. See it as a minimum target too set for your sale. The ideal person to do this is a wealth manager.
The value of your business. Understand what a fair price for your business is. This involves conducting a thorough valuation.
You should consider factors such as revenue, assets, intellectual property, market position, and future growth potential. Consulting with an expert at this point usually comes with no obligation and could make a huge difference to what you’re ultimately able to achieve for your company. If you were previously undervaluing your business in your mind this could make you a lot of money. Equally, if you perceived your business was worth more, an accurate valuation will be the catalyst to help you recognise what you need to change to help you get to the valuation that you want. Our Value Builder tool is an ideal place to start.
Once you know your business is worth more than you need you are ready to sell and as knowledge is always power you strengthen your hand by knowing where you need to be when negotiating.
While aiming for the highest possible price is natural, it’s essential to be realistic and flexible to facilitate productive discussions.
Different buyers will have different views on the value of your business to them. Others will have the ability to pay more up front. What we are not saying is to accept a low cash offer, over a higher one paid over time, but opening any negotiation with flexibility helps discussions to progress, you can then decide whether to pursue the offer that results or not.
Also consider factors such as market conditions, industry trends, and the buyer’s financial capabilities and why they NEED to buy you when setting your shortlist of suitors.
Once you get to the negotiation table it’s vital to have a clear understanding about the unique strengths your business has to offer to a buyer (and they may differ between buyers) and sell your value proposition. Think of it as a “Why you list”. Whether that’s a loyal customer base, innovative products or services, proprietary technology, or strong brand reputation, highlighting these assets can serve to justify a higher sale price.
Put yourself in a potential buyer’s shoes ahead of time to anticipate any potential concerns and consider their objectives. Understanding this will give you the insight you need to tailor your negotiation strategy to your benefit, the buyer’s benefit, and for the benefit of the whole deal. Mitigating potential risk matters as much as highlighting potential.
It goes without saying that you want to leverage your strengths and competitive advantages during negotiations to bolster your position, and it’s important to keep this front of mind at all times. Your buyer will want to focus on the issues and you will want to always be on a positive footing rather than defending your position. So acknowledge and allay their concerns, but do not be afraid to blow the trumpet!
Whether it’s multiple interested buyers, a unique market niche, or strong financial performance etc., consistently emphasising your strengths and your position can secure you a better deal.
There’s always going to be most emphasis on the core elements of the deal — the price and the terms, but it’s a good idea to be open-minded and willing to explore creative solutions that benefit both parties. Especially if negotiations stall for whatever reason.
This could include seller financing, considerations around future performance, or structuring the deal in a different way — perhaps for taxation reasons.
NB – Whenever vendor financing is offered, always ask if they have a track record of successful deals and if they will provide a reference – after all they want to borrow your money.
Approaching negotiations like this could help you salvage a deal or get an improved offer.
Negotiating the sale price of your business is a complex process that requires expertise and experience. Get the advice and support that you need — it will pay for itself many times over. And without it, it will likely be difficult to secure a sale at all. Find a partner that can help you.
Negotiations can be prolonged and challenging so mentally things can get quite difficult. It’s important to keep the end in mind and keep going. Ensure you have a trusted and experienced sounding board. Don’t lessen your goal without good reason. Stay the course.
Avoid rushing into hasty decisions or compromising your position out of desperation. Stay focused and maintain open communication with the buyer. Trust and put up with the process to achieve the best possible result.
At Business Partnership we can provide you with a free valuation today.
There’s never any obligation and it’s always confidential. Find out what we could achieve for you and how we can help you every step of the way.
Call our team on 01606 535 024 or find your local contact here.
Over the 40 or so years we’ve been selling businesses we have gained an understanding of the importance of targeting the right buyer – not only in terms of maximising value, but also the speed of transaction and protecting the legacy of what you have built. Below are some insights and strategies that we’ve experienced along the way that will help you pinpoint the ideal buyer for your business.
Let’s start with a clear understanding – embarking on the journey of selling your business is a significant decision and one that requires careful planning and strategic execution.
First and foremost, it’s crucial to recognise that not all buyers are created equal. Your business is unique, and finding the right match requires a thoughtful approach.
Let’s explore some key steps to guide you through the process.
Before you start searching for potential buyers, take the time to thoroughly understand your business and its appeal to different buyers. What makes it stand out? What are its strengths and weaknesses? Gain a clear understanding of your value proposition to effectively communicate the appeal of your business to your best potential buyers.
Know your numbers. Know your forecasts and the marketing plan they are built upon. Develop a clear, simple-to-understand winning pitch.
Consider the characteristics of an ideal buyer for your business. Are you looking for an individual entrepreneur, a strategic investor, an investment group, or perhaps a competitor seeking to expand their market share or to take you out? Clearly defining your ideal buyer will help you tailor your business sale marketing to make sure that you’re outlining the right benefits to the right buyer.
It also allows you to focus on what you want for the future of the business and enables you to focus your attention on targeting those who align with your vision and protect that legacy.
Understanding the market landscape is crucial to understanding who you should be targeting as potential buyers for your business. Analyse industry trends, competitor activities, and the overall economic climate. This knowledge equips you with the insight that you need to position your business as an attractive investment opportunity.
We touched on this earlier. Crafting a compelling narrative that highlights the unique value proposition of your business is a critical determining factor in securing a sale. Focus on the positives, develop the potential and paint a positive, captivating vision for the future, backed up with hard data.
Make your business emotionally attractive as well as showcasing it as an all-round practical investment.
Practice your pitch, refine it, and deliver it more effectively each time. Know it off the top of your head and inside out. Think Dragons Den, could you pitch your business effectively?
Seek the guidance of experienced professionals such as business brokers, financial advisors, and legal experts. Their expertise can be invaluable in identifying potential buyers, negotiating deals, and navigating the complex aspects of the sale. This professional support and guidance pays for itself when the right deal is secured as a result.
Confidentiality is paramount when selling a business. The premature disclosure of your intention to sell can lead to uncertainty among employees, customers, and suppliers. Are you protected before you tell trade competitors? Incorrect disclosure can negatively impact the value, so work closely with your advisors to implement a robust confidentiality plan that safeguards sensitive information until the appropriate time.
Building relationships within your industry can open doors to potential buyers. Becoming well acquainted with competitors can even lead to huge future opportunity.
Attend industry events, network with key players, be seen and heard online, and be part of all the important associations related to your business sector. Being seen as a thought leader attracts buyers and adds value. Often a personal connection can often be the catalyst that leads to a successful business transaction.
Of course, if you haven’t looked to do this to date and you’re looking for a quick exit find a broker with these connections instead.
A competitive sale (sealed bid) process creates value, but also be wary of buyers who want to have exclusivity or access to sensitive data before a deal has been agreed – do not give them that advantage.
Ultimately, finding the right buyer can take time, and then there are the negotiations and due diligence processes that follow. The journey will likely have its ups and downs so stay focused on the end goal with patience in mind. Be willing to adapt your strategy if it becomes evident that you need to in order to secure the right exit.
At Business Partnership we have over 10 regional offices throughout the UK, each with a local expert on hand to provide you with a free valuation and offer up advice. We can take all this work off your hands whilst securing you the sale and the financial future that you want.
There’s never any obligation and everything is confidential.
Call our team on 01606 535 024 or find your local contact here.
The term ‘memo of sale’ may sound familiar to anyone who’s bought or sold a property. When it comes to the sale of a business the same document is most commonly referred to as Sales Particulars or Information Memorandum.
This is an initial marketing document that’s released in order to generate interest in a business. In other words, it comes out when you decide to sell and long before any sale is agreed.
This is a document that contains all the basic information about a company, whilst steering away from anything that would identify the business. It’s designed to give a potential buyer enough information to let them decide whether they wish to find out more. It does however provide sufficient detail to enable an assessment of the wellbeing of the business.
Whatever name you use, these documents should present a short summary of the business being sold, including what it does, together with staff numbers, premises, turnover and profit. This is followed by an overview, explaining why the business is a good investment and what’s included in the sale. There’s also a brief description of the products and services offered, how they benefit the customer, and the extent to which the business is viable.
It should provide detail about the preferred sale structure, along with key financial figures such as asset value, profit, debt, and cash flow, together with any unique selling points.
There should be an explanation of the staff and management structure, as well as the seller’s role in the business. But take care not to provide information that could identify the business, such as revealing personal names of staff members.
Creating these documents gives no access to a business’s accounts, but usually gives headline figures from the last three years, including turnover, gross profit and adjusted net earnings. It also aims to forecast the revenue for the following year, and any potential for growth and expansion. An overview of property liabilities such as sight leases and rents is also useful.
No one wants to buy a business that’s on its way out, so a memo of sale, sales particulars or information memorandum gives you an opportunity to explain your motivations. If you plan to start another project, it’s best to explain what that is. A buyer will always be suspicious that you’re selling a dud or that you aim to set up in competition and saddle them with debts.
For help composing your sales documentation, contact Business Partnership. We’ve been helping clients buy and sell businesses for thirty years, and we can help you too.
(Originally posted 2018. Updated 2024)
When you’re planning to exit, merge, grow or make future plans for your business, understanding what it’s worth is likely going to be your primary concern.
When it comes to valuing a business correctly there’s no simple formula that will give you a definitive value, as many factors are in play. In this article we are going to explore the most common approaches to valuing a business, what can impact the number, and how you can use this insight to plan your next move.
Valuing a business requires proper consideration of not just past performance but also current conditions and likely future potential. Of course, potential risks that could be on the horizon play a part too. Valuing a business accurately therefore requires a holistic approach and using rule of thumb and average industry values will often provide a mis-leading answer.
Creating an accurate valuation allows you to make informed strategic decisions regarding expansion and diversification or if you’re looking to secure the sale of the company.
Exiting a business is a process. There are various steps to go through if you’re going to achieve maximum. Understanding your current valuation compared with where you want it to be is the start of the process. It will help you understand what changes you need to make before you sell in order to get the best price and the level of interest that you will need.
Investors will want to scrutinise your valuation assumptions to assess their potential return on investment.
There are two main income based methods used:
This approach heavily focuses on cash flow and how well equipped the company is to generate it for new investors in the future.
This approach takes a look at the corporate landscape and looks to compare the company against similar organisations based on revenue, profits, or assets.
Average market multiples come into play here. This allows potential investors to compare companies on a like-for-like basis. This could include looking at earnings, book value, or simply headline sales figures. The risk is that unless your business is average you may under estimate its value.
Here, the value is derived from the company’s assets and liabilities. This includes the book value of assets or the liquidation value, considering what the company owns versus what it owes.
If the company owns a lot of high value machinery or property this can be a popular avenue when it comes to valuing the business as that represents almost guaranteed value, unlike future sales forecasts.
Revenue trends, profit margins, cash flow, and stability over time significantly impact valuation. Consistent growth and recurring revenue are valued by investors and therefore can result in a higher valuation.
No matter what you’ve achieved in the past or how solid the situation looks on paper, the market is the market and it can either help you or prove to be a huge hindrance.
Economic, social and political factors all have a constant impact on your outlook. An investor will likely want to know how these pressures could impact the future of the business and how changes in the level of volatility could affect operations.
What do you own?
Unique assets, patents, intellectual property? Some other kind of competitive advantage?
Of course, this can play a massive part in your business valuation, even if you have low revenues. Potential can be pivotal if it’s protected.
Which brings us on to risk.
Assessing risks associated with industry-specific challenges, market competition, regulatory changes, and management stability can impact your company’s valuation.
Investors and buyers of businesses like stability matched with potential.
Business valuation is a nuanced process, there is no one size fits all.
To understand exactly where you are, you need to talk to an expert who can assess your situation from all angles.
This is especially important if you’re looking to sell as they will be able to help you maximise the value of your business whilst working to a timeline that suits your needs.
At Business Partnership we can provide you with a free valuation today.
There’s never any obligation, it is always confidential, simply find out what we could achieve for you. Call our team on 01606 535 024 or find your local contact here.
We are delighted to have bolstered our Midlands team with the appointment of a new regional partner covering Worcestershire, Gloucestershire, and Herefordshire.
Having worked at senior management and board level, Simon Glover brings a wealth of knowledge to the franchise role including experience of business sales, acquisitions, and succession planning.
Simon set up his first stationery business in 1996 at the age of 26, selling a range of items from a catalogue. He then moved into the printing industry and guided his company through many changes including the big leap forward into large format and signage.
A combination of organic growth and shrewd acquisitions ensured the business grew from start-up to more than £4 million. Since selling the company five years ago, Simon has focused on sharpening his skills as a sales and marketing consultant and has advised on many successful exits and acquisitions.
“As soon as I saw the franchise had become available, I thought it was perfect for me,” he said.
“It was a massive leap of faith but I’m really loving doing this role full-time and sharing my experience of the joys and potential pitfalls of selling a business.”
If you would like to connect with Simon, you can reach him on simon.glover@business-partnership.com(Opens new window) or connect on Linkedin.
Whether you’re selling, buying, or planning for the future, Business Partnership is here to help. Contact us today to speak with your local Regional Partner and start your journey toward success.