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Buying and selling a small business: What to expect and how to prepare

Whether you are selling a business that you have developed and worked hard at, or you are embarking on a new venture or lifestyle change, you should make sure that you are fully prepared and protected.

Most small business transfers involve the sale of leasehold or freehold property, fixtures and fittings and also the goodwill of the business plus stock. Whether you are buying or selling, being aware of the various issues will help to ensure that the transaction runs smoothly from beginning to end.

Getting the right agent and heads of terms

When you decide to sell your business, choose an agent who is experienced in valuing your type of business, and who understands the business which you are selling. You can then be comfortable that you are getting the best price for the time and money that you have invested in your business.
A good agent will also ensure that clear and comprehensive heads of terms are settled at the outset, to include any specific arrangements that have been agreed. This saves time, money and misunderstanding as the transaction progresses.

Do you need an accountant?

The advice of an accountant can be invaluable to buyers and sellers alike. An accountant can advise on the most efficient way to apportion the purchase price between property, fixtures and fittings, and goodwill. Capital allowances and VAT are also likely to be relevant, not to mention advice on whether to use a company vehicle to purchase the assets of the business. Well organised sellers will ensure that a complete set of accounts are available for potential purchasers to review, and careful buyers will ask their accountant to review those accounts before they commit.

Solicitors and accountants often work closely together in business transfers and this can save time and money in the future.

Preparation is key

If you are selling your business, there are many things you can do in advance to help the transaction run smoothly, and aid the due diligence process. The buyer’s solicitor will request copies of the records relating to the business including leases, insurance policies, supplier contracts, customer contracts and bookings, licences to include premises licences, outside seating licences, planning permissions, and also evidence of rates, utilities and outgoings for the property. They will also request sight of fire safety records, food hygiene records and any other maintenance records. Employees also need to be considered, and the buyer’s solicitor will request information relating to any employees to be transferred under the TUPE Regulations, to include details relating to length of employment, contracts, salaries and pension arrangements.
If the property is leasehold, the seller might want to consider obtaining the landlord’s agreement in principle to the assignment of the lease at an early stage. The landlord may require references but they cannot unreasonably withhold their consent to the assignment. The outgoing tenant will usually be responsible for the landlord’s legal fees but this can be open to negotiation with the buyer.

What happens next?

Once heads of terms are agreed, the parties will instruct their solicitors to manage the process of buying and selling. The buyer’s solicitor will carry out relevant property searches, title checks and raise standard commercial property enquiries. They will also raise due diligence enquiries relating to the operation and management of the business and this is where the preparation mentioned previously comes into its own.

The buyer’s solicitor will prepare the first draft of the sale and purchase contract, a deed of assignment of goodwill and report on the property title, search results, and due diligence investigations. The solicitor’s report may well raise further questions or concerns for the buyer which will need to be addressed.

If the purchase is being funded by way of bank finance and the property will be used as security, the buyer’s solicitor will usually be instructed to act for the lender. They will be required to report to the lender on any issues that may affect whether or not the property is good security.

Sometimes a less experienced buyer may want to spend some time shadowing the seller so that they can hit the ground running on completion. Sellers are often willing to agree to this on the basis that the shadowing takes place after exchange of contracts, and before completion. That way, the parties are contractually committed to completion of the sale and purchase, and the seller doesn’t risk the buyer changing its mind after a busy few days in the kitchen!

We are a proactive, commercial but friendly team of commercial property lawyers, experienced in acting for buyers and sellers of small businesses. We take the time to fully understand our clients’ business needs and work closely with team members in our corporate team to provide a wrap-around commercial service to clients.

Get in touch
If you would like to discuss an issue relating to buying or selling a business, please get in touch by emailing tamsin.mann@murrellassociates.co.uk or call 01872 226900.