How to sell your business

This is the fourth and final article in our series outlining the process of selling your business with a focus the completion process and the practical steps a seller should bear in mind.

What is completion?

Completing a sale is when all the hard work comes to a head and the parties are ready to sign on the dotted line. Typically, the completion process involves (i) the exchange of signed documents; (ii) payment of the purchase price; and (iii) certain other formalities for the legal transfer of the ownership of the business.

Depending on the nature of the deal, there may be several documents to be signed, consents to be obtained, and practical steps required to ensure the buyer can take over smoothly. A seller can assist with a smooth completion process by considering the following practical tips:

• Purchase price. Ensure the buyer is ready to complete and funds have been delivered to their solicitor ahead of completion. This avoids any last-minute issues with the transfer of funds.
  
  
• Legal formalities. Sign all documents, discharge any redundant banking securities/charges and ensure Companies House is up to date.
  
  
• Third parties. Assign or novate key customer and supplier contracts (if required) or seek consent from important counterparties to ensure the continuance of the relationship.
  
  
• Handover. Deliver a detailed handover to the buyer so they can hit the ground running.
  
  
• Banking. Ensure your bankers are informed about the sale and that bank mandates are ready to authorise the buyer’s use of the business account.
  
  
• Deliverables. Ensure any documents or other items the seller is required to deliver at completion are within the seller’s control.

Employees, customers and suppliers

A well-prepared seller should agree the timing and content of any announcements to customers, suppliers, employees and the wider public ahead of completion. Some of these relationships may be critical to the continuity of the business, so the parties need to work together to ensure key employees stay with the business, and customers and suppliers don’t seek to terminate or renegotiate their contracts. Early consideration and planning goes a long way to mitigate the risk of surprises at, or shortly after, completion.

Post-completion

As explored in our previous article on warranties and indemnities, a seller can be exposed to a claim from the buyer if an issue arises after completion. The seller should keep detailed records and evidence to respond promptly to any claim. A well-informed seller should fully understand the various limits and controls which seek to mitigate their exposure for post-completion claims.

If any part of the purchase price is left outstanding at completion (e.g. on deferred terms or subject to the future performance of the business), the seller should diarise any key dates, understand their rights if the buyer misses a payment, and ensure that they are informed of any key performance indicators which may affect payment. If the seller is to remain in the business post-completion, they should ensure they abide by any conditions set out in their employment contract or service agreement to avoid unnecessary disputes about performance that could reduce or delay payment. Further, the seller should be cognizant of any restrictions that apply once they leave such as covenants to not compete with the business.

Quite often, completion is not the end of the road for the seller. It is becoming increasingly common for part of the purchase price to be paid on deferred terms or subject to conditions being met. It is imperative that the seller understands their rights and responsibilities once the deal has completed to ensure they maximise the value available to them.

Being prepared for completion, and anything that may come after, is crucial to minimise risk of a headache later. After all, the aim for a seller is to achieve as clean a break as possible.