Is the timing right and how can you make your business more attractive to a potential buyer?
The last 18 months may not have been viewed by some as the best time to sell a business; the financial consequences of the Covid-19 pandemic and the UK leaving the EU and the current economic instabilities the UK is facing being key factors affecting the decision. However, certain sectors have actually seen an increase in interest by investors: where they have seen an opportunity to make quick gains.
Is it the right time for you to sell?
Whatever sector your business is in, there will always be a number of reasons why you may wish to sell your company.
Some reasons may be due to the business and its environment such as sales are growing, so your business will be attractive to buyers; industry is consolidating, so there are a number of potential buyers looking; the business landscape has changed due to Brexit and the pandemic; there is no succession plan in place or no one to succeed you; or your business has potential but you are not able to access the required capital.
Other reasons may be more personal in nature such as you may have new interests you wish to pursue; you wish to reduce your retirement risk; you may have health reasons requiring you to sell; you have simply had enough and wish to do other activities apart from work; or you wish to leave on your own terms and not due to any outside influences – it’s just time!
Once you have made the decision to sell it is always best to prepare your business well in advance. It is worth investing time and effort as this will help make it is as attractive as possible to potential purchasers in the market, help prevent delays and reduce the scope for negotiation by the purchaser during the acquisition.
Are there any issues and inefficiencies that need addressing?
By reviewing the internal and external affairs of your business early on you can identify anything that may put off a potential buyer. This is important and should be conducted from the perspective of an outsider.
What adjustments do you need to make so that your business is more attractive? Some businesses are in niche markets so there could be issues concerning selling to third parties and may come out in their due diligence.
If it is difficult to be impartial especially with the investment that you have put into your company consider hiring an external consultant to do this work for you.
Protect your assets
Business assets such as the physical building, machinery, employees, trade secrets and intellectual property are always of interest to potential buyers. Make sure the assets are protected and incentivise key people to tie them in.
If you are looking to sell some of the business assets get in touch with your solicitor so that they can help you with the restructuring of the business. Planning well in advance can help to mitigate tax liabilities, whatever the value you are looking to make.
Get your house in order
Demonstrating and showing your business’s financial health is of huge importance. There cannot be any discrepancies and your accounts must be organised otherwise a potential buyer may believe that there are deeper financial issues.
A purchaser will also want to check that the company has a healthy business pipeline by reviewing your commercial agreements. Make sure that your contractual documentation is up to date, relevant and fit for purpose. Your solicitor will be able to help with this.
Make sure that any other agreements are available and up to date, over the years these will have built up and will also determine the cost of the business. These could include a lease or premises, web hosting and data storage agreements, internal policies, insurance and accountants etc.
Revisit your internal procedures and processes and check to see if any cost savings could be made and that they are still current and in-line with industry and legal standards.
If you have any disputes with customers, suppliers or staff it is always best to get your solicitor involved early on in the process so that they can be resolved as soon as possible, as any issues identified could be used to devalue the price that a potential buyer is willing to pay.
Seek legal advice early
An experienced commercial lawyer will have the expertise to know the sort of enquiries that will be raised by the buyer as well as the sort of issues that could provide a way in for negotiating or even the loss of the sale.
By seeking legal advice at an early stage, you can tap into this insight and use it to your advantage. You can prepare for the due diligence process, for example by:
- Getting prepared and compiling the information and documents that you are likely to need so that you have everything for when it is requested by the buyer;
- Take any remedial steps to address any aspects of the business that could be cause for concern and take steps prior to due diligence;
- If there are any risks which cannot be reasonably mitigated prepare the parameters of any indemnities or warranties that you a prepared to give; and
- Draw up a confidentiality agreement which will enable you to ensure that the buyer and their advisors keep any commercially sensitive information secure and only use it for the purpose of determining whether or not the purchase should proceed.
For further information and advice on the sale or purchase of a business please contact Olivia Chalmers in our Corporate Commercial Team on 01733 882800 or email [email protected].
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