When faced with the sale of your business you (and indeed your advisers if they are not up to the job!) may struggle to work out how to begin the process.

Buy from a Fool, sell to a Fool, a cynical (and wise) accountant once quipped to me.

With guidance from experienced advisers the buyer and seller should be able to identify the key issues beyond the obvious of the price and how it is to be calculated.

Those key deal issues are always best captured in a Term Sheet or Heads of Agreement.  These can act as a very effective communication tool to move the process beyond the handshake or agreement in principle, to a firm proposal.

Since Heads of Agreement are invariably stated to be non-legally binding, a mere expression of intent, the impatient seller may be persuaded by the (skilled) buyer to go straight to negotiating the detailed legal documentation.

This is often a mistake and these are the reasons:-

• For you as the hands on owner-manager the process of selling your business is going to be very distracting and stressful. A good Heads of Agreement ensures effective project management.  A sensible timetable and the key elements in the process will be put forward and agreed.

• Before incurring significant management time and professional costs you will want to know that they key deal terms are agreed and that the buyer has the funds. You may be uncomfortable to ask the buyer the obvious question: have you got the money and can we please see evidence of that.  Your advisers can do so as part of the process of signing the Heads.

• Whilst not legally binding, points formally agreed to in Heads have powerful psychological force. A buyer who reneges on a point formally agreed may be someone you decide you cannot trust and do not want to deal with.  The buyer will know this so you can get key issues on the table for discussion at an early stage.

• Sitting around the table, principles and advisers, to agree and sign the Heads should create a “project team”. Meeting in this way brings the key players together early on which can often smooth the path and avoid miscommunication and misunderstandings down the line.

Well-resourced buyers (or the con man) in a hurry will often say to the seller, we have agreed terms we should now go straight to legal documentation.  “Your advisers are trying to make the process unnecessarily complicated”, they may add.  Accepting that sales pitch may leave you in the unfortunate position where, even if they legal terms look unattractive down the line, you cannot afford to withdraw.

The advantage of the Heads will be the opportunity to walk away before you have invested too much emotional energy and cost in the sale process.

As the old saying goes “Marry in Haste, Repent at Leisure”.

For further information, please do not hesitate to contact Everyman Advisory 01386 240145 or email everyman@everymanadvisory.co.uk