TC’s Head of Legal Services James Allen outlines some of the key areas that business owners need to consider …
With a new year looming and hopefully a little more stability following December’s general election, many business owners may well be thinking afresh about selling their business.
This can be a challenging and time consuming experience – not least if you’re also trying to run the business from day to day – but it’s worth finding the time to take stock and consider what the process entails and how you should prepare.
Here are some of the steps that are essential to consider.
Firstly, it is important to determine what your commercial expectations are so that when you have first contact with a potential buyer you can respond succinctly to their initial offer.
Next – and similar to selling your house or any other asset – you should seek professional advice on the value of your business. Your accountant will be familiar with its net asset value but can also introduce a suitably qualified industry specialist to ensure that the goodwill value is ‘priced in’.
- Due Diligence
Following agreement of heads of terms, a prospective buyer will be carrying out detailed and thorough checks on all aspects of your business, and this is an area that many owners underestimate in their preparations for a sale.
All of your contracts can be checked in advance for any anomalies and loopholes that would be discovered in due diligence. These will include staff contracts, distribution and agency agreements, and supplier and customer terms and conditions. You will also need to check on any intellectual property rights used in your business: are they owned by your company or licensed, and are the related contracts in order? Should any trademarks and patents (which the potential buyer might want to use) be registered, and if they are already registered are any renewals pending?
- Statutory Records
Another key issue is the company registers. Your company books and records will be the first point of reference for a buyer to confirm who actually owns the business, so dig them out.
While many companies have moved these records onto electronic registers, many more have stored them away in a distant drawer or lost them altogether. Shareholders may have changed and while stock transfer forms might have been signed the relevant register of members and records may not have been updated.
A corporate lawyer or company secretary can review the registers for inconsistencies and anomalies and advise on how to rectify them. There is rarely a ‘quick fix’, so early attention is important.
- Accounting records
One major aspect that will sway a potential buyer is the accuracy and nature of your accounting records. Again, it is obvious but worth reiterating that a buyer will expect to see well-presented documentation, preferably going back at least three years and detailing all aspects of your business, from historic turnover and profit figures to asset valuations, liabilities and debt and profit forecasts.
- Corporate Structure
It is also important to consider the structure of your business and how best this can be arranged for sale. For example, if there are two ‘divisions’ within your company it may be worth splitting them to facilitate the separate sales, likewise if you want to retain ownership of the premises. In any event this is worth pursuing regardless of a sale as it can ring-fence the trade risk in such a way that a cataclysmic event in one division doesn’t bring down the other.
I cannot over emphasise the need for expert tax advice. If you are selling your business then it is essential that you consult your tax advisers at an early stage. They can optimise the tax treatment of the proceeds of sale and ensure that your business is sold in the most tax efficient way.
- Document management
A sale process is information heavy, so keep things simple and be well organised. We recommend collecting electronic copies of all relevant documentation and uploading them to a cloud data storage site (or ‘virtual data room’). Then it’s all in one place and can be more easily managed and retrieved.
Finally, it’s worth setting up dedicated private email addresses for all communications. This helps to ensure that employees (and the wider business community) are not aware of your plans to sell and allows senior management to communicate on matters relating to the sale. Bear in mind that, following completion, a buyer would have access to all correspondence on the company’s servers.
In summary, preparation for a sale will make the process smoother, both for you and the buyer. And by ‘being ahead of the game’ your negotiating position will be stronger.
In other words: get richer, quicker!
TC Group offers a full range of legal services, covering business acquisitions and management buy-outs, shareholder agreements, group restructuring, share capital changes, commercial agreements and secured lending.
For further information please contact James Allen on: 03300 887111, or email: JamesAllen@tc-group.com