So you’ve had an indicative offer for your business and a confidentiality undertaking has been signed. What happens next?

Heads of Agreement

The buyer will have already done some homework which will have enabled them to make an offer subject to due diligence (see below). But before we get there it is always advisable to draw up Heads of Agreement. These are rarely legally binding but are essential to manage the process effectively, although many buyers (and sellers) may take the view that they are not necessary so go straight to negotiating the legal documents.

The process of selling your business is going to be a significant distraction. Heads of Agreement can highlight the key areas for discussion and negotiation as well as set out the party’s expectations when it comes to the timetable for the deal. By ironing out the key issues before incurring substantial professional fees you will be in a much stronger position to make an informed decision on whether or not to proceed.

So what are the key areas typically covered in Heads of Agreement? This depends on the deal but would generally include the price, payment terms, any assumptions and conditions to purchase, as well as key warranties and any exclusivity period.

The Heads of Agreement should also assist you with the potentially most time consuming part of the sales process: due diligence. By setting out the scope and timelines at an early stage expectations are set for both parties.

Due Diligence

Once the Heads of Agreement have been signed the due diligence process will begin. In a share purchase the buyer will be inheriting the liabilities of the company so will want to review everything from key contracts, employees, intellectual property, to leases and the financial history.

You can expect an extensive list of questions along with requests for copies of documentation split between legal, accounting, commercial and tax.

By pre-empting the questions you can get yourself prepared for this exercise and make sure your house is in order and that the time you spend on this is reduced. Also be aware that anything that might spook the buyer at this stage could result in the offer being withdrawn or reduced so, again, preparation is key to ensuring that you can deal with any issues before this part of the sales process.

Conclusion

Selling your business is likely to be stressful and time consuming. In order to avoid this having a detrimental effect on your business while the process is ongoing being prepared is, as always, vital. Heads of agreement will help you communicate with the buyer (and their advisers) and deal with any tricky points of negotiation early on in the process whilst having prepared for the due diligence exercise will save you huge amounts of time.

For further information, please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 or email everyman@everymanlegal.com