Selling your business can realise the value built up over time and provide an exit opportunity, however, if you are thinking about selling, there are a number of things that you can do in advance to help prepare and maximise the value of your business.
Below are 10 top tips to consider in contemplation of a sale.
- Non-Disclosure Agreement – Get any potential buyer to sign up to one. It prevents them from disclosing confidential business information to third parties, therefore protecting your confidential information should the sale not proceed.
- Heads of Terms – once a potential buyer has been found, it is worth putting together ‘heads of terms’. These are the agreed principles both parties intend to be reflected in the written contract. You should get advice on the preparation of this document – if an agreed term is not set out in the heads of terms, it can be difficult to include it afterwards or alternatively, if something is included in the heads of terms which you don’t wish to agree to, it can be difficult to negotiate it out of the ultimate transaction documentation.
- Identify the value in your business – think about where the value in your business lies. Is it in your assets; your business contracts/goodwill; your people; your location or the uniqueness of your brand? Recognising this at the outset allows you to focus your own due diligence, ensuring everything is in order to realise the maximum possible value.
- Consider the best way to sell – get advice from a tax advisor to ascertain the most tax efficient way of selling your business, for example, via an asset sale, or if you operate via a limited company, a share sale.
- Consider what you want to sell – you may not want to sell all of your business assets, so decide if you want to retain ownership of any asset. For example, you may wish to retain the business premises for your own use, or lease to a potential buyer.
- Control – be aware that key commercial trading contracts usually contain ‘change of control’ provisions which can enable the other party to terminate the contract automatically on a change of control of the business. If these contracts are significant to the business, how the counterparties are approached will need to be carefully considered.
- Charges/Security – does a bank/lending institution hold any security over your assets? If so, you will need to speak to the specific lending institution before any sale of those assets to obtain appropriate releases and/or consents.
- Financial Accounts and Records – liaise with your accountant to ensure your financial accounts and records accurately reflect the current state of your business and are correct and up to date.
- Intellectual Property – does your business use intellectual property which is necessary for its function? If so, ensure that such intellectual property is either owned by the business or that a valid licence is in place. Remember, there will be goodwill in your business name so consider how to manage that on a sale, especially where it is a family name. If a potential buyer is allowed to use the name, you will likely be restricted from using it in a business context going forward. However if the buyer is prevented from trading under that name, they may view the business as less valuable.
- Advisors – instruct advisors who have extensive knowledge of buying and selling businesses. If you involve your advisors from the outset, it can make for a much smoother process, and ultimately, a successful exit.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Corporate & Commercial Team at Cleaver Fulton Rankin for further advice or information.
Kathryn Laverty, Associate Solicitor, Corporate & Commercial Team, Cleaver Fulton Rankin, Solicitors.