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Offering advice to retail firms on finance, acquisitions, disposals and growth

Selling a business in the retail sector

Selling a business is a time-consuming and often complex process. You need to advertise effectively, negotiate with potential buyers, and make sure the information you provide is reliable, all while running your business day-to-day.

It is advisable to hire a business broker to help you with the sale. They will talk to interested parties on your behalf, advise on any problems you are likely to encounter, generally freeing you up to carry on driving the business forward.

The key aspect to hiring a broker, however, is to make sure they have previous practical experience in your industry.

Retail industry and the economic crash

Retail suffered greatly throughout the economic crisis, as consumers drastically cut back on spending. Jobs were lost, both large chains and small independent retailers went out of business – the industry had to change from within.  

Partly as a result of advances in technology, the last decade or so has seen a huge growth in online shopping and social media marketing, providing a global reach that allows small retailers to compete with larger counterparts.

As a result, if you are a high street shop owner selling your business, there may be a number of facets that contribute to your overall turnover, instead of the traditional income stream from a single ‘bricks and mortar’ shop.

How do you present your information to potential buyers?

The first document you will need to produce is the Sales Memorandum, also known as an Information Memorandum. Contained in this document should be a general outline of your business, including why it was started, how it works on a day-to-day basis, where you make your profits, and the reasons for selling.

Buyers will also need to see general financial information, although there is a confidentiality aspect here. More specific financial details can be provided once you have narrowed down potential buyers to those with a definite interest.

As far as financial information is concerned, buyers will expect to see:

  • Simplified financial statements including profit and loss
  • How the business is funded
  • Asset valuations
  • A list of business liabilities and debts
  • Details of staff contracts
  • Financial forecasts, such as cash flow, sales, and profit

Professional advisors

Your accountant will be able to help you prepare the necessary financial documentation to be included, and you may also want to seek professional guidance from tax and legal experts.

When you receive payment for the business you need to invest the money in the most tax-efficient way, and your tax advisor will be able to guide you on the best way forward in this respect.

Professional legal advice will definitely be needed should your buyer demand warranties or indemnities in relation to the business.

What issues are retail business owners facing that could impact on a sale?

  • Cyber security
    Website security is an ongoing issue for any online retailer - protecting customer information and providing a secure payment system is paramount to a successful venture.
    With so many new threats to our online security it is very difficult for businesses to recover from a cyber attack, and very easy to lose consumer loyalty and trust as a result.
  • Business rates
    Depending on your location, you may have experienced a huge increase in business rate liability since the latest revaluation of commercial properties in the UK. Although the government has promised to look into, and potentially overhaul, the current system, some retailers continue to struggle with cash flow due to these increases.
  • Funding
    It can be difficult for retailers to obtain the right type of business funding, but this is crucial in dealing with issues such as business rates increases. Alternative lenders offering merchant cash advances are becoming more common - these are based on future cash sales, but traditional bank lending can be hard to obtain.

Negotiations with buyers and the Heads of Term Agreement

Once you have shortlisted potential buyers, you will probably find that one or two seem to be a ‘good fit.’ At this point you need to begin more in-depth negotiations, and go through the buyer’s due diligence process.

This involves further scrutiny of your business finances, as the buyer checks the information you have provided is accurate and can be relied upon. They may make further demands in terms of warranties and indemnities, which could ultimately put you at risk of legal action, so you should seek professional advice before agreeing to these.

The Heads of Term Agreement lays out the results of your negotiations - parts of this document may be legally binding, but there is scope for further negotiation before the final sales and purchase agreement is drawn up.

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Advice based on your industry

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