Key considerations when getting your business ready for sale
Whether you are looking to retire, or simply looking to sell your business and start a new venture,it is sensible to start planning well in advance of an exit.
Good practice would be to start planning well in advance on any such decision and in fact anywhere between 1-2 years, is advantageous, depending on the type of business you operate.
One of the key questions determining an exit will be, how much is my business worth? And how can I maximise value?
The answer to this will depend very much on whether or not you have all your ducks in a row. This short piece examines some of the things that you should consider:
- Is your business structured correctly for a sale?
You may not have considered this question before, but the difference between corporate structures could have a huge impact on the value of your business and in turn your return on exit. We often get calls from clients looking to sell and one of the first questions that we ask is whether the client has taken accounting and tax advice. It is crucialthat you speak with your accountants and tax advisors to ensure that any tax reliefs, such as entrepreneurs’ relief, will be available on exit and equally it is crucial to determine any potential tax liabilities at the outset and consider how they could be minimised.
It is also important, when you have found a potential buyer to discuss with your accountants and tax advisors how to best structure the actual transaction – will you receive the full purchase price on sale? Will the purchase price be subject to a net asset adjustment post completion? Is there a deferred element and if so, will it be contingent on certain conditions or subject to, for example, a completion accounts mechanism or earn-out?
We will be able to advise you on the legal implications of the transaction structure.
- You have the correct structure, now, what about the legals?
- Do you deal with suppliers or distributors? If so, on what terms do you operate? Do you have written contracts in place?
- Are you relying on one key customer? Is there a contract in place?If so, what does it say about a change of control?
- Are you GDPR compliant and do you have adequate privacy and data protection policies in place?
- If you operate your business from leased premises what are the terms of the lease? Will the terms impact on any sale? Do they need to be renewed well in advance of any sale?
- Are your IT systems up to date , fit for purpose and in good working order?
- Are all corporate governance documents up to date?
- Is your business complying with all relevant laws and legislations that are relevant to the industry in which your business operates?
The above is a non-exhaustive list of considerations and the buyer will conduct a process known as due diligence at the start of the transaction to ask a series of legal and financial questions about your business.
If there are considerable gaps/issues arising from the due diligence exercise, the buyer may seek to price re-negotiate or at worst case decide against the purchase.
We are happy to assist client’s with a “health check” to see how we can assist.
- Now the structure and legals have been considered, what about the day to day operations?
- Does your business rely on key management and employees?
- How crucial is it that your key management / employees are retained on the sale of the business? Do they have up to date contracts of employment with sufficient notice periods?
- Should you be considering any incentive schemes for example an EMI Option Scheme?
- Are the employment handbooks and policies in place and is everyone complying?
- What about health and safety?
Agata Rumbelow would be happy to discuss any of the issues raised to see how we can assist.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.