Selling a company

Preparing to sell your business

If you’re planning to sell your company, you should begin the preparations well in advance. The most important thing is to ensure that your business is profitable and that your financial statements also reflect this. You can lighten your balance sheet by selling assets that are not essential to your core business, such as investments and large real estate holdings, to make the transaction price more affordable for the buyer. The profitability of your business is measured by EBITDA (earnings before interest, taxes, depreciation and amortisation). It’s mainly driven by, sales and turnover, but you should also be mindful of your costs and avoid unnecessary expenditure. 

In addition to the financial aspects, it’s important that you have clear and well-documented processes on the operational side of your business. You should also document all agreements, customer relations and products and ensure that your financial administration is running smoothly. When everything is in order, a buyer will be able to evaluate your business more easily and your operations will be less dependent on the tacit knowledge in the organisation. Entrepreneurial businesses are, by definition, reliant upon their owners so you need to make sure your business is ready for the change in ownership and management. A buyer will often want to ensure that the target company is capable of operating in your absence. Selling your business will also be a big change for you personally and you need to be prepared to give up control of your company.

Selling the business: assets or shares?

At the start of the process, you need to consider whether the sale will involve the sale of business assets or shares. 

In a share sale, you as the owner sell the shares in your limited liability company to a buyer. This results in all of your company’s assets and liabilities being transferred to the buyer unless otherwise agreed. In turn, you are paid a transaction price, which will be considered in your personal taxation.

In an asset sale, the buyer acquires the business as a whole or specific areas of the business. It’s important to clearly define which assets, rights and customer and contractual relations are being purchased. Debts and liabilities which are not part of the deal are retained by the seller. The transaction is between the buyer and the company, rather than its owner, and the company receives the transaction price. As the owner, you can choose to distribute profits from the sale to the shareholders. 

We recommend that you enlist the services of a legal or tax adviser to determine which of these options is best for you, as the decision depends on your individual case as well as a number of liability and tax considerations.

Finding a buyer for your business and types of buyers

When you’re selling a business, it may take some time to find the right buyer. First investigate if you have any business contacts, other acquaintances, employees or partners who might be interested in buying your company. You should also use your networks and the business forums in your industry and area. There are two main types of buyers with different motivations and modes of operation. The first type is an industrial buyer, which is often a competing company in your sector. The second type consists of professional investors, such as private equity firms. 

Industrial buyers are motivated by adding value to their current business. They may be interested in opening up new markets, increasing their market share or finding new products and production facilities. The ideal buyer is often a competitor that would benefit from blending the two businesses and is already familiar with the sector and the competition. It’s looking to integrate your company into its existing business through a merger or an acquisition. The primary goal of an industrial buyer is to find a company that complements its business or an opportunity to benefit from synergies. They are mainly interested in compatibility and long-term prospects. 

You may also find the ideal buyer among professional investors who are looking to buy businesses to growth the business and its value going forward. Private equity investors are interested in profitable businesses creating a solid cash flow in sectors with a positive outlook and high predictability. Their investment horizon is about 5 to 7 years after which they will find a new owner for the business either by selling it or listing the shares on a stock exchange. In most cases, the aim of a private equity investor is to continue the business as it is, while creating value by scaling up and developing the business as well as growing the business through other acquisitions. They want to find a company with high growth potential and a strong cash flow to ensure it’s eligible for financing.