Farm Business Structures Part 5: How do I sell my farming business?
Tom Potts, from our corporate team discusses key aspects of agricultural business structuring in a series of articles, providing information on the different options and helping you identify the best option for your farm.
If you are thinking of retiring or just want to realise some of the benefits of your hard work over the years, you may have considered the option of selling your farming business.
The process of selling a business can seem daunting. In this article, it is broken it down into 5 key questions you need to consider:
1. What do I want to sell?
Your decisions will be influenced by your business structure. For instance, if you have a Limited Company, you can choose to sell either the company shares or its assets. Tax implications are important, so it’s advisable to seek advice from your accountant on how to optimize your returns.
It is important to note that you don’t have to sell everything. Often, agribusinesses have diversified over time and may now have a number of different components, for example “traditional” farming alongside leisure and tourism activities. If you want, you can structure your sale in a way that allows you to retain part of that business but sell the rest.
Another option we regularly see is sellers selling the business but retain the property. They then lease it to the buyer, providing an income going forward.
2. How can I prepare?
If there are any legal issues with your business (such as ongoing disputes or missing paperwork), it is better to resolve these before you start speaking to potential buyers. If they come to light in the middle of sale negotiations, they could lead to the buyer trying to reduce the price or walking away altogether.
It can be difficult to know what is and isn’t likely to be an issue for potential buyers. This is why we offer our clients who are thinking of selling a ‘mock due diligence’ service, where we review your business’ documents, identify any major issues and suggest solutions.
3. How will I find buyers?
If you don’t already have a specific buyer in mind, the typical approach involves enlisting the services of an agent. We collaborate with several reputable business and land sale agents and can offer recommendations upon request.
4. What is my business worth?
An independent valuation can be a useful guide to what your business is worth and it is important to have a figure in mind as to what you would accept. However, ultimately the price will depend on the bargaining strength of the parties involved.
How you get paid is as crucial as how much you get. Sellers prefer getting the full price in cash when the deal is done. However, buyers might want to delay some payments. If you agree, it’s important to think about conditions (like future profit goals) and ensure the buyer can actually pay.
5. How can I limit my personal liability?
Every potential buyer will likely demand various personal assurances regarding the business, known as warranties and indemnities. These assurances could potentially expose you to personal claims after the sale. Seeking guidance from a specialist business sales solicitor early in the process is crucial. It provides you with the optimal opportunity to mitigate your liability by incorporating suitable protections for yourself in the sale contract.
Tom would be pleased to discuss the options for your farming business, please get in touch with our corporate team, or contact us online.
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