There are many ways of paying for and taking over a business. You will need to weigh up what is on offer.
Can the buyer really pay for the business?
- However good an offer may sound, unless it is properly financed, it is worthless.
- Buyers must have the right approvals (eg from their board or from shareholders).
What form will payment take?
- Cash payment in full up-front is the safest option, but may also be the least tax-efficient.
- If deferred cash payment is offered, establish whether it is guaranteed. It may be in the form of earn-outs that are linked to future sales or profits.
- In a situation where payments are reliant on the future performance of the business, make sure you retain some form of management control to enable performance targets to be met. Otherwise, you may receive less than you are entitled to.
- A share swap is only comparable to a cash payment if the shares you receive are in a quoted company. Make sure to check the tax implications.
- Shares in an unquoted company may be hard to value and difficult to sell.
What will your responsibilities and liabilities be?
- You may be asked - or required - to remain involved in the business. But remember you will no longer be in control, which you may find difficult and frustrating.
- You will probably be tied to warranties and indemnities for a year or more.
How will the business be run in future?
- What expansion or sales plans does the buyer have? Will any parts of the business be sold off?
- How will the deal affect employees? Will anyone be made redundant?
How long will completion of the sale take?
- Industry and accounting due diligence must be completed. This may include an accountant's report. The accountant's remit will be to verify the key management information and to identify potential problems for the buyer.
- Legal due diligence may take more time - sometimes several months.