Selling a business can involve many hard decisions. We often see the emotional attachment that owners and family members have to their business and the soul destroying impact when the buyers’ advisers embark on the due diligence process. This scrutiny can result in flaws that owners didn’t know existed being revealed, hence achieving the objective of protecting the buyer and negotiating the price down. To lessen this pain and receive the best sale price for your business, there are a number of ways you can prepare.
Before marketing your business you should work towards:
- Getting it in the best possible shape; and
- Eliminating as many potential “issues” as possible.
Financial Considerations when Selling a Business
It is highly advisable to involve your business adviser or accountant to look at whether or not you have the appropriate financial controls in place and to ensure that your business is maximising profitability.
- Do you have a set of up-to-date financial information and robust cash flow statements?
- Can you demonstrate that you are able to attract new and retain long term business?
- Can you initiate cost efficiency measures or eliminate unnecessary expenses?
Legal Considerations when Selling a Business
Many business owners don’t even consider their legal documentation, which can lead to major problems and greatly devalue your business.
It is important that you:
- Resolve any actual or potential legal disputes, such as late and bad debt.
- Demonstrate good corporate governance, which is seen as a good indication that those running the business have strong and efficient risk management in mind.
- Can legally prove that you own the key assets that are fundamental to your business, such as your intellectual property. This will include how you manage and protect your business’ data (GDPR).
You should ensure that your key legal documentation is up to date and fit for purpose, this includes: Directors’ and employees’ contracts; employee handbook; health and safety policies and your trading terms and conditions of business.
It can save you a significant amount of money if a pre-sale legal review of your key trading documents and partnership/shareholder agreements is undertaken.
Once you are ready to embark on the sale process it is vital that you protect your confidential information by preparing a non-disclosure agreement, before anything is revealed to the buyer. You need to keep in mind that a potential buyer may decide not to proceed and without the appropriate legal protections in place, they could walk away with and potentially exploit your key business information. We regularly prepare this type of agreement for sellers in order to safely exchange information.
For further information on selling a business, please contact Kaye Whitby in our Corporate and Commercial team on 01244 305900.