The first decision concerns the form of the transaction. A buyer may acquire shares in the company or purchase selected assets, such as equipment, stock, contracts and goodwill. Goodwill can include reputation, customer relationships, operating systems and future earning capacity that are not shown as physical items on a balance sheet. The structure may affect tax, staff arrangements, liabilities and the documents required. The parties should also record whether cash, vehicles, premises, debt, leases and surplus assets are included. Legal and tax advice before heads of agreement can prevent assumptions from becoming expensive disputes.
Price should follow a considered valuation rather than a guess based on turnover, personal income or the amount the owner hopes to clear. A valuation estimates what the enterprise may be worth under stated assumptions. An asking price is the figure put forward in negotiations, and it may be set above or below that estimate for commercial reasons. Start by reviewing several years of accounts, current management reports and bank records. Normalised earnings may require adjustments for unusual repairs, private expenses or a one-off loss, but every adjustment needs a credible explanation and supporting documents. A buyer will test those figures.
The method should suit the business. An earnings approach examines maintainable profit and applies a multiple informed by risk, size, sector, customer concentration and prospects. EBITDA, meaning earnings before interest, tax, depreciation and amortisation, can assist comparisons of operating performance, but it does not represent cash available to the owner after debt, tax or capital spending. An asset-based method may be more appropriate for a property-heavy operation, equipment business or firm holding substantial stock. The owner should understand why a method was selected and which assumptions drive the result. Guidance on how to sell a business can help place valuation within the wider sale process.
Transferability deserves the same attention as profit. If customers call the owner’s mobile, staff wait for verbal instructions and supplier terms exist only in a notebook, the buyer may question whether earnings will survive handover. Create a written procedure for recurring tasks, record key contacts in a shared business system and assign responsibility for ordering, invoicing and customer complaints. Review whether important employees are likely to stay and document any arrangements that need consent. A two-week diary of the owner’s routine can reveal hidden dependencies, from opening the premises to approving refunds, that should be addressed before marketing begins.
A clean due diligence file reduces repeated requests and makes weaknesses visible early. It might contain signed leases and variations, tax returns, insurance certificates, licences, employment agreements, intellectual property records, equipment finance documents and details of disputes. Add customer and supplier concentration information where relevant, along with aged receivables and stock reports. Working capital generally concerns the short-term resources needed for ordinary trading, including stock and receivables considered alongside short-term obligations. The contract should state the expected working capital position and how stock, unpaid invoices and cash will be treated at completion.
The headline price is only one part of an offer. A buyer might propose an upfront payment plus an earn-out tied to future revenue or profit. That later payment is conditional, so the agreement must define the measurement period, accounting rules, access to records and the seller’s role after completion. It should also address decisions that could affect performance, such as staffing, marketing spend or changes to suppliers. A lower amount paid securely at completion may carry less risk than a larger figure dependent on targets. Tax advice should examine the proposed structure and possible capital gains tax consequences without assuming a particular outcome.
Approach suitable buyers discreetly and release information in stages. A confidentiality agreement can restrict use of sensitive material, but the seller should still remove unnecessary personal data and keep a record of what was supplied. Before granting access to detailed customer files, confirm the buyer’s seriousness, funding position and intended use of the information. A written offer should identify the price, assets included, completion date, conditions, funding arrangements and any transition work expected from the owner. Independent practical valuation advice can help test the assumptions before a figure is presented. Negotiations are clearer when the owner separates firm requirements from preferences and responds to evidence rather than pressure.
