The Sales Process Explained

 

1. Initial Call

This is the first point of contact with the potential buyer. It’s usually a short conversation to understand their interest, give a high-level overview of the opportunity, and determine if it’s worth moving forward.

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2. NDA Signed (Non-Disclosure Agreement)

Before sharing any sensitive information, both parties sign a confidentiality agreement. This protects both sides and ensures that all shared information stays private.

 

3. Accounts Supplied

Once the NDA is in place, the seller provides basic financial documents—such as profit & loss statements, balance sheets, and management accounts—so the buyer can assess the viability of the business.

 

4. Discovery Call

A more in-depth conversation where the buyer asks questions about the business operations, growth potential, staff, customer base, and other relevant areas. This helps them understand the business beyond just the numbers.

 

5. Initial Offer

Based on the information received so far, the buyer may present an initial (non-binding) offer. This gives an indication of their valuation and purchase interest.

 

6. Face-to-Face Meeting

If both sides are aligned, they’ll meet in person to build trust, clarify key aspects of the deal, and strengthen the relationship

 

7. Pre-Due Diligence

Before committing to a formal offer, the buyer may request key documents such as:

Bank statements

Tax returns

Payroll reports

Lease agreements
This helps them validate the financials and identify any early risks.

 

8. Definitive Offer

A formal (but still non-binding) offer is presented based on the information gathered so far. This is more concrete and detailed than the initial offer.

 

9. Heads of Terms / Letter of Intent (LOI)

This document outlines the agreed key terms of the deal, such as price, structure, and timeline. It also gives a period of exclusivity to the buyer (normally 3 months) where they can invest the time and money in due diligence.

 

10. Due Diligence

A thorough audit of the business. The buyer’s legal and financial teams review everything from contracts and compliance to employee records and intellectual property to ensure there are no surprises.

 

11. Final Offer

Assuming the due diligence results are as expected, the buyer confirms the final purchase price and deal structure. This offer typically doesn’t change unless something unexpected is uncovered.

 

12. Sale and Purchase Agreement (SPA)

The legally binding contract that finalizes the deal. It includes all terms and conditions agreed upon and is signed by both parties to complete the sale.At this point, agreed payments are made.

 

 

Deal structure

Payments to the seller are normally structured in instalments.  This is to reduce the risk to the buyer.  It is possible to agree a deal where you (the seller) receives all of the money up front, however the price is greatly reduced.  Achieving the best price for the company normally involves a deal structured over 3-5 years.

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Typical deal structure:

30% - 50% on day one (completion)

Then remaining payments spread over 1 – 5 years.  The longer the deferred payment period, the higher the overall price

 

 

Frequently Asked Questions (FAQ)

 

What are the risks a buyer will look at, for example, if client concentration is high?
Buyers assess risk to understand how stable and predictable the business is after the saleHigh client concentration is a red flag because
If one or two clients represent a large percentage of revenue (e.g., 30% or more), the business is more vulnerable.
If that client leaves after the sale, the buyer could face significant revenue loss.
The buyer may worry that the relationship is tied to the current owner personally, and might not continue post-sale.
So, it’s not necessarily a deal-breaker, but it might lower the valuation, or lead to deferred payments or retention clauses.

 

Why are payments deferred?

Deferred payments help manage risk for the buyer and align incentives. They’re often used when:
The buyer wants to confirm the business performs as expected after the handover.
There’s uncertainty around client retention, financials, or operational dependencies.
The seller plays a key role and the buyer wants to ensure a smooth transition.
These payments may be structured as:
: based on performance targets (e.g., revenue or profit).
: paid after a fixed time if there are no disputes or surprises.

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What is EBITDA and how is it calculated?

https://www.youtube.com/watch?v=9oHbN90h_HU

 

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a way to measure a company’s core operating performance, excluding factors that vary by owner or accounting choices.

Formula:

EBITDA= Net Profit + Interest + Taxes + Depreciation + Amortization

 

Buyers use EBITDA because:

It allows easy comparison between businesses.

It reflects the company’s true cash-generating ability.

It’s often the basis for valuation multiples (e.g., 3x EBITDA).

 

How long does it take to sell a company?

https://www.youtube.com/watch?v=oW-syHdV3I4

 

The full sales process typically takes between 4 to 9 months, but this can vary depending on several factors:

How ready and organised the seller is (financial records, legal documents, etc.)

The complexity of the business and its operations

How quickly both parties can respond and negotiate

The depth of due diligence required by the buyer

Whether external approvals (regulators, landlords, shareholders) are needed

 

Quick summary of the timeline:

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Initial discussions & NDA = 1–2 weeks

Financial review & discovery = 2–4 weeks

Offer & Letter of Intent = 1–2 weeks

Due diligence = 6–12 weeks

Legal (SPA & negotiation) = 2–4 weeks

 

What UK tax will I have to pay?

https://www.youtube.com/watch?v=EF5cY72mVEo

 

If you’re a UK seller, the main tax you’ll usually pay on the sale is Capital Gains Tax (CGT) on the profit made from selling the business.

 

Key points:

The gain is calculated as:

Sale Price−Base Cost of Shares or Assets

If selling shares, and you qualify, you might be eligible for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which reduces the CGT rate to 14% on gains up to £1 million.  This is due to increase to 18% after April 2026.

If you sell as an individual and don’t qualify for the relief, CGT is typically 10% or 20% depending on your income level.

 

It's strongly recommended that sellers speak to a tax advisor or accountant early in the process to plan ahead and optimise the structure of the sale.

 

What’s the difference between a share sale and a trade and assets sale?

https://www.youtube.com/watch?v=REETOu9SrEw

 

This is a key structural difference in how a business can be acquired:

Share Sale:

• The buyer purchases all the shares of the company.

• The entire business is transferred, including all assets, liabilities, contracts, staff, and tax history.

• Usually simpler for the seller, as they fully exit the company.

Common for limited companies
The buyer inherits past liabilities and risks.

Asset (or Trade and Asset) Sale:

• The buyer chooses specific assets and liabilities they want (e.g., equipment, IP, contracts).

• The company remains with the seller — only the business components are transferred.

Lower risk for the buyer
More complex to execute (e.g., reassigning contracts, transferring staff)

 

What does it mean when a company is bought cash free-debt free?

https://www.youtube.com/watch?v=zIMmbiLrwDI

 

"Cash-free, debt-free" is a standard term in M&A transactions. It means:

• The buyer values the business excluding any cash or debt that exists at the time of sale.

• On completion:

  • The seller retains the cash in the company (if any)

  • The seller is expected to pay off any debts (loans, overdrafts, etc.)

So, the purchase price assumes that:

• The business has no net cash or debt

• Any adjustments for excess cash or unpaid debts are handled separately, often through a completion accounts process

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What happens to cash in the business?

In most deals - particularly those structured as cash-free, debt-free - the cash remains with the seller.

• The business is valued excluding any cash at completion.

• The seller typically withdraws the cash (e.g., transfers it out) when the sale is finalized.

• If there is any remaining cash in the company at completion, it may either:

  • Be deducted from the purchase price, or

  • Be left intentionally if agreed in advance (e.g., to cover working capital needs)

 

What is working capital?

https://www.youtube.com/watch?v=XLzWbLD3XRk

 

Working capital is the money needed to run the day-to-day operations of a business.  In a business sale, this is money that needs to be left in the business - the seller does not receive this money.
 

It’s usually defined as:

Working Capital=Current Assets−Current Liabilities

In most cases:

• Current assets = inventory + accounts receivable

• Current liabilities = accounts payable + short-term obligations

During a sale:

• A "target working capital" is agreed upon (a normal level for smooth operations).

• If the business has more than this amount at closing, the seller may receive an additional payment.

• If it has less, the buyer may adjust the price downward.

 

What happens to the debtors (accounts receivable)?

https://www.youtube.com/watch?v=urcJr6Xot3k&t=31s

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This depends on the deal structure, but in most share sales:

• Accounts receivable stay in the business, and the buyer inherits them.

• The buyer will collect customer payments as they come in after the sale.

If it's an asset sale:

• The seller may keep the debtors, and collect the outstanding invoices after closing.

• Or, the buyer may acquire them, with adjustments in the price.

It's important to agree in advance who will collect, and who gets the value of, any outstanding invoices.  Bear in mind that the Accounts Receivable often forms part of the Working Capital consideration and is not paid to the seller.

 

What happens to the creditors (accounts payable)?

https://www.youtube.com/watch?v=VdP_l5YRctM

 

In a share sale:

• The company remains liable for paying its existing creditors.

• Since the buyer is taking over the company, they also take over these obligations.

In an asset sale:

• The buyer typically does not take on the creditors, unless specified.

• The seller remains responsible for settling those debts.

 

What if my business has loans?

Again, assuming a cash-free, debt-free transaction:

• Outstanding loans must be paid off by the seller before completion, or

• The buyer deducts the value of the debt from the purchase price and settles it directly.

In a share sale:

• If loans are left in the company and not repaid, the buyer inherits them, which will usually reduce the valuation accordingly.

It’s crucial that:

• All debts and liabilities are disclosed before due diligence.

• Both parties agree on how loans will be handled in the final terms.

 

When should I tell my employees I am selling my company?

It’s usually best to wait until the deal is well advanced — typically after everything has been fully agreed, and ideally on completion.

• Premature announcements can cause uncertainty, low morale, or staff departures and this can devalue the business.

• A joint communication plan can be agreed between buyer and seller.

• In some cases, key employees may need to be informed earlier (under NDA) if they’re part of due diligence or the future plan.

We recommend transparency - but timed carefully to protect the business and its people.

 

How are assets valued?

Assets are valued based on market value, book value, and usefulness to the business.

Typical valuation methods include:

• Tangible assets (equipment, vehicles, property): valued at market or depreciated value

• Stock/inventory: valued at cost or resale value

• Intangible assets (IP, brand, goodwill): included as part of overall business value, not usually valued separately

In an asset sale, each asset may be individually valued.
In a share sale, the company is valued as a whole, including all assets and liabilities.

Specifically with vehicles, these should be valued on a glass guide / blue book / parkers valuation.  They are not valued on what the vehicle originally cost the business or on the valuation given by second hand car selling websites (webuuyanycar for example).

 

Can I continue to work for the company long term after I sell?

Yes.  Many buyers welcome ongoing involvement, especially if the owner brings unique value, relationships, or expertise.

Options include:

• Consultancy agreements for a transition period

• A part-time or full-time role in the new company

• Earn-out arrangements tied to performance over time

 

In the earn-out / consultation period, how am I employed?  Am I paid for this time?

During the earn-out or transition:

• You may be contracted as a consultant or employee, depending on the agreement.

• You will usually receive a salary or consulting fee, separate from any earn-out payments.

• The earn-out itself is often linked to performance (e.g. sales, profit, retention), and paid over time.

Yes, you are paid for your time during the transition - and the structure can be negotiated.

 

What will happen to my staff?

The goal is to retain good people and ensure continuity.

• In a share sale, all employment contracts remain in place — staff continue as normal.

• In an asset sale, staff are usually transferred to the buying company under TUPE regulations (UK law protecting employment rights).

 Staff are a core part of the business - we will always treat them fairly and retain talent.

 

What information will I need to provide during the due diligence?

https://www.youtube.com/watch?v=zVZSS88gIGQ

 

Typical due diligence covers:

• Financials: Profit & Loss, balance sheets, tax returns, bank statements

• Legal: Company structure, contracts, leases, licenses, disputes

• Commercial: Customer lists, pricing, suppliers, market data

• HR: Employee contracts, payroll, benefits, holiday records

• Operational: Systems, processes, equipment, premises

We’ll provide a checklist, and help you stay organised throughout the process.

 

At what point should I seek professional advice from advisors, accounts and lawyers?

You should seek professional advice (an advisor or consultant) as soon as possible.  They will help you to navigate the technical information and emotional ups and downs that selling your business will inevitably bring.  However, it’s usually not necessary to involve Solicitors and Accountants until reaching Heads of Terms, Due Diligence and the final SPA.

• A solicitor (experienced in M&A transactions) ensures you're protected in the contract and legal terms.

• An accountant or tax advisor helps you understand the tax impact and prepare your business properly.

• A broker or corporate finance advisor (if involved) supports valuation and negotiation.

 

I have unpaid tax bills – is this a problem and how are they handled?

It depends on the amount and how it’s being managed.

If tax liabilities are , they can be addressed in the purchase agreement (SPA) and valuation.

• Buyers may request:

  • An adjustment to the price

  • Or for you to repay these debts before completion

• In a share sale, these liabilities stay with the company — so we’ll typically seek warranties or indemnities.

Transparency is key - unpaid taxes don’t kill the deal, but they do need to be managed upfront.

 

I have an overdrawn directors loan account - is this a problem and how are they handled?

Yes, it can be - but it's common and solvable.

• An overdrawn director’s loan means the business has loaned money to the director, which is an asset of the company.

• Buyers usually expect this loan to be repaid by the seller before or at completion.

• If not repaid, the buyer may reduce the purchase price to account for the debt accordingly

We’ll work with you to agree how this is handled as part of the deal structure.

 

My business uses invoice finance / factoring.  How will this be handled?

Invoice finance arrangements must be disclosed early.

• The outstanding finance is typically settled at completion, or

• The buyer may assume the agreement, depending on the lender and structure

• We’ll usually:

  • Request copies of the factoring agreement

  • Include adjustments in the deal price for any outstanding advances

It’s not a dealbreaker, but it must be disclosed early and reviewed carefully during due diligence.

 

Are there any guarantees for deferred payments?  What if something happens to my company or the buyer?

Yes, this is an important concern and there are ways to reduce risk:

• Deferred payments (e.g. earn-outs, instalments) can be secured through:

  • Escrow accounts

  • Parent company guarantees

• Terms are documented in the SPA and may include clauses about:

  • Buyer default

  • Seller cooperation

  • Trigger events

 

What will the SPA contain?
https://www.youtube.com/watch?v=RBzNAd6BGoQ 

 

The Sale and Purchase Agreement (SPA) is the main legal contract that finalises the terms of the sale. It outlines exactly what is being bought, for how much, and under what conditions.

Key contents of the SPA include:

• Purchase price and how it will be paid (e.g., upfront, deferred, earn-out)

• Assets or shares being sold

• Completion date and actions needed before/after completion

• Warranties and representations (promises about the state of the business)

• Indemnities (seller’s obligations to compensate for specific issues)

• Restrictive covenants (to prevent the seller from competing after the sale)

• Working capital adjustments, if applicable

• Earn-out terms (if relevant)

• Dispute resolution mechanisms

 

What restrictive covenants (warranties) are normally included in the SPA?

Restrictive covenants are clauses that limit what the seller can do after the sale, in order to protect the value of the business the buyer is acquiring.

Typical covenants include:

• Non-compete: The seller agrees not to start or join a competing business for a set time (usually 3 years) and within a specific geographic area.

• Non-solicitation: The seller agrees not to approach or hire former employees or customers of the business.

• Non-dealing: The seller agrees not to do business with past clients, even if the client approaches them.

• Confidentiality: The seller agrees not to disclose confidential business information after the sale.

These clauses are standard in most SPA agreements and are limited in time and scope to be fair and legally enforceable.