Understanding contracts when buying or selling a business

Negotiating the sales deal - seller's perspective


Throughout the negotiations, keep in mind what you want to achieve in selling your business. If necessary, reconsider what you are prepared to sell, the kind of buyer and financing. For example, you could try for an employee buyout rather than a trade sale. Even if you lose money on advisers' fees, it might be better than selling and not achieving your aims.

See how to achieve an employee buyout.

Using a third party agent for anonymity

If selling to another business, use a business transfer agent, business broker or corporate financier to issue your sales memorandum. This way you do not reveal your business' identity until you have made your choice of potential buyers.

Before selling your business

Before you start discussions, get your buyers to sign confidentiality or non-disclosure agreements. You need to check their credit-worthiness at this early stage to eliminate prospective buyers who cannot pay. Compare the prices and payment terms in their initial offers. Some may include too many future payments conditional on profits or other targets. Make your first choice, but keep other buyers lined up in case this deal falls through.

You may have decided to sell to the highest bidder or the one who best secures the business' future. Either way, you should be prepared to continue working for the business during a certain period if your knowledge and contacts are vital to the business.

Take great care over the wording and what is covered by the warranties and indemnities. Have your solicitor draft a disclosure letter to limit your liabilities and a vendor protection schedule to limit the time period within which they apply. See your responsibilities and liabilities when selling your business.

You need to take equal care over the financial details and make a more detailed check of your buyer's financial track record and the payment structure they are offering.

Before you agree to sell, make sure that all problems have been resolved and agreed in writing with the buyer.