Top Tips for Buying and Selling Businesses

Buying and selling businesses is a complex legal area and there are many pitfalls for those who do it unprepared. It’s important to get advice early on in the process so you can be sure that you are clear on exactly what you are getting from the deal, and also to protect your investment, or the proceeds of your sale against unexpected liabilities.

Top tips for buyers

• Think about how the business you want to buy fits in with the rest of your business activities. Does it add value to what you currently do?
• Decide whether you want to buy the business assets only or the shares. There are advantages and disadvantages of both
• Make sure you’ve received all the information/documentation you need from the seller before making a decision on whether or not to go ahead with the purchase
• Ensure that any problems discovered during negotiations have been resolved and agreed in writing from the seller

Top tips for sellers

• At an early stage, check the credit-worthiness of your prospective buyers, so you can weed out those who can’t pay
• Think about what you are prepared to sell (assets or shares) and the kind of buyer you are looking for e.g. employee buyout versus trade sale
• Before you start negotiations, get your prospective buyers to sign confidentiality agreements, after all, you will be exposing sensitive information such as customer lists, trade secrets etc

Heads of agreement

This is a useful document which sets out the main points of the deal between the buyer and seller. Although this is not usually binding, it’s normally worth spending some time negotiating detailed heads of agreements as it will reduce the scope for disagreement later, the document covers things such as:

• The purchase price
• The timing and form of payment
• What is included/excluded from the sale
• Timetable to completion
• Any intellectual property rights, such as copyrights, trademarks, website domain names, etc

The importance of taking early legal and financial advice

As you can see, buying and selling a business is a complex legal area, that’s why it’s important to get legal and financial advice early on in the process. It’s also worth getting advice from a tax specialist to ensure that the deal is tax efficient. As well as being able to advise on the legal aspects of buying and selling a business, Hopkins can also point you in the right direction for financial and tax advice.