Date: 06/05/2022 | Written By: Karl Hodson
Selling a retail business involves various stages in common with selling other types of business. There are certain elements specific to retail, however, such as the value of ‘goodwill.’
Additionally, the business may own or lease multiple outlets, trade solely online, or operate a business model combining ecommerce and traditional bricks and mortar shops. Having the business professionally valued by someone experienced in the retail sector, therefore, is a key factor.
The Information Memorandum, or Sales Memorandum, provides general information for those interested in the business sale. It’s advisable to have a non-disclosure agreement (NDA) signed prior to sending out the Sales Memorandum, as competing businesses may demonstrate interest in the sale.
This protects the business’ sensitive information, which might include the company’s annual accounts, sales and profit projections, and information on leases and employee/ supplier contracts.
Having a retail business professionally valued ensures that negotiations begin at a realistic level. An accurate valuation also provides a solid foundation for achieving the highest price and the business owner’s main objectives.
The most appropriate valuation method depends on various elements, such as the type of retail business that’s being sold, whether it’s a solely bricks and mortar business or runs an online element, as well as the number of assets it owns.
Negotiations and buyer due diligence
Negotiating the price and terms of sale can be complex, and upon reaching a verbal agreement the buyer will want to conduct a process of due diligence. This means that they carefully check the information provided for accuracy and reliability.
The due diligence process typically covers financial data, including any profit forecasts provided, and the company’s assets and liabilities. Legal information will also need to be confirmed, including the terms of lease agreements, intellectual property rights, and any risks of litigation.
Commercial aspects of the business, such as its marketing policies, will also come under scrutiny during this phase.
Heads of Terms agreement and Sales Agreement
The Heads of Terms agreement, also known as a Letter of Intent, documents the results of detailed negotiations. It includes key areas of the sale, such as the final price and how it will be paid by the purchaser.
The Sales Agreement is drawn up after final negotiations have completed, and is legally binding on both parties. This contract lays out the full terms and conditions of sale, including how the sales price will be paid, and details of any warranties and indemnities that have been agreed.
For more information on selling a retail business in the UK, please visit Ernest Wilson on Practice Portfolio.
Keep up to date with the latest news, updates, expert opinions and events specifically for Advisers.
Interested to understand how Practice Portfolio could benefit you and your clients?