When it comes to selling a business in the education sector, not only do you have to go through a potentially complex process, but also deal with industry-specific issues such ongoing staff development and training.
You should allow yourself plenty of time to plan the sale of your business, and carefully consider your main goals and objectives. These might include the minimum price you are willing to accept, and the deadline by which you want to complete the sale.
Ideally, you should formulate an exit plan over several years. But once you have made the decision to sell, it is a good idea to use the services of an experienced broker, as well as other professional advisors to assist with legal, financial and tax matters.
The Information Memorandum is the first official document in the selling process. It sets out general information about your business – how it started, its purpose, how the business works in practice, and why you have decided to sell.
The document will be released to interested parties, who will also be able to view financial information about your company and details about your staff. As far as the financial information is concerned, you should include profit/loss and other financial statements, lists of assets and liabilities, asset valuations, and profit forecasts.
It is important to provide accurate information throughout, but particularly with regard to the financial section as this will be closely scrutinised by interested parties.
The education sector is experiencing challenges and pressures in a number of areas, including:
To provide the best learning experience for students, education businesses need to provide a continuously high level of staff development and training. This can be costly, not only in relation to the price, but also in terms of the time away from teaching needed to undergo training.
If you have a ‘piecemeal’ IT system rather than an integrated set-up that streamlines processes and provides reliable information, it may impact on the price a buyer is willing to pay.
The sheer amount of data available to businesses can be overwhelming. Unless you have taken steps to capture the valuable information about your students and their achievements, the opportunities provided by ‘big data’ will be lost. This involves making an investment in the right technology and software to sort, analyse and utilise the data.
Staff recruitment and retention may be a significant issue for your business. Retaining the best teaching talent is an ongoing challenge which creates uncertainty in teaching standards, and over-reliance on agency staff in some cases.
The basis for valuation of your business is likely to be its profits, and the valuation process should be carried out by a specialist to ensure the correct methods are used.
Potential buyers will need to see general information about what has led you to the decision to sell the business, how you make your profits, your customer base, the history of the business and how it works on a daily basis.
This, and general financial information, is laid out in the Sales Memorandum (also known as an Information Memorandum), and made available to interested parties. You will need to include financial details such as your recent profit levels, profit forecasts, simplified financial statements, and information about staff contracts.
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If you have engaged the services of a broker, you need to inform them of your goals and objectives in selling. They will undertake negotiations on your behalf with potential buyers, and should narrow down the buyers to one or two parties most likely to buy.
Serious purchasers will want to carry out due diligence on the information you have provided, and the value/risks presented by your business. Once this is complete, a Heads of Term agreement can be formulated.
The Heads of Term Agreement sets out the terms arrived at following previous negotiations. Parts of the document may be legally-binding – perhaps an exclusivity agreement has been made whereby the business is taken off the market whilst talks continue with a single buyer.
You need to be particularly careful about warranties or indemnities demanded by the purchaser. These could result in claims for compensation being made against you if the information you have provided is later found to be inaccurate or misleading.
Contemplating selling your business? Our free, comprehensive guide will walk you through how you can sell your company. Our FREE guide covers all of the essentials, including:
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