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Top five tips for preparing to sell your business

By Tim Scanlan / 05 June 2020
6 min.
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Worthwhile read for: Business Owners

Selling your business can be a daunting and unfamiliar process. We have helped hundreds of clients with selling their business and we understand that it can be a challenging task.

To assist, below are our top five tips based on our experience to help you prepare for the sale of your business, so the process can proceed as smoothly as possible.

Assemble a great team

Building a supportive team around you to assist with the sale will be vital. This will involve assembling a team of legal, financial and tax advisors to guide you through the transaction.

In addition to the external team, it is also a good idea to assemble an internal team who can attend to the requirements of the sale process, such as preparing the information for potential buyers to review and responding to due diligence queries. This will also allow others to focus on the business whilst the transaction progresses. Ensuring that your external advisers work together with your internal team will benefit you by ensuring the transaction is completed as efficiently as possible and will enable your business to continue to operate effectively during the sale process.

Be prepared

Often a transaction can be an onerous process of collating documents and details for the purposes of the sale process. This can occur prior to the commencement of the sale process to ensure the sale process proceeds as quickly and efficiently as possible. 

You should ensure that your business has well documented financials, contracts with employees, contracts with suppliers and contracts with customers. Having properly documented arrangements with key stakeholders in the business will add value to the business in the eyes of potential buyers. 

It is also important that the relevant information is easy to locate and accessible to potential buyers. Using an electronic data room assists in this process and can contain some protections to assist in ensuring that potential buyers only use the information for their due diligence investigations. 

Preparing the appropriate information as early as possible will make the due diligence process slightly less painful and demonstrating preparedness will also help to gain confidence from potential buyers in the way the business is run.

Be mindful during negotiations

The terms on which you sell your business will materially affect the ultimate value of the transaction to you. It is important that you do not only focus on the price during negotiations as there are other terms that could affect what you take away from the transaction. Getting your legal advisors involved early will help you avoid these pitfalls. Some examples of those are as follows:

  • Employees – If the buyer does not agree to offer employment to the employees of the business, you could be left with significant redundancy costs. Obviously, avoiding or knowing what that cost may be is important to assessing overall value of the deal to you. 
  • Equipment leases – If you have liabilities in the business then it is important that those are dealt with in the transaction. It may be that they need to be paid out or transferred to the buyer. In either case, it is important for you to determine how these items are dealt with to enable you to assess the overall value of the transaction. 
  • Stock – If your business involves stock and work-in-progress, how those items are valued in the transaction will be important in determining the price ultimately paid to you. If valuation methodologies for those items are not what you expect, then it could result in you receiving less than what you expect for your business. 
  • Restraints – The extent of the restraints that are to apply to you after the sale of the business will be important to consider. If you are precluded from doing something that you were proposing to do after the sale, then you will need to factor that into your assessment of the value of the transaction to you. 

Be aware of tax implications

Selling your business will likely have capital gains tax consequences and you should consider the potential tax implications prior to entering into a sale agreement. In some cases, goods and services tax can also apply to the sale of your business. You should consult your accountant or one of our expert taxation lawyers regarding the potential tax implications to avoid being met with a nasty surprise at the end of the transaction.

Prepare for settlement 

Once the transaction terms have been finalised it is necessary to turn your mind to the settlement process. The better prepared you are for settlement, the smoother and easier the process will be.

Some key items that will need to be attended to are as follows:

  • Lease – The lease for the premises will need to be dealt with and when the landlord is a third party it can often take some time to finalise the assignment of the lease or the grant of the new lease. Accordingly, it is important that the landlord is contacted early so they can commence their process for assignment. 
  • Licences – If your business requires a licence to operate, then the application for the transfer or the application for a new licence should be lodged with the relevant authority as soon as possible. Authorities may take some time to process the application so that needs to be factored into the settlement process. 
  • Security interests – The buyer will require you to transfer the business free from all security interests. Accordingly, if you have any financing arrangements with banks or credit terms with suppliers, it may be necessary to deal with those items prior to completion to enable you transfer the business to the buyer on completion free from all security interests. You should contact the relevant secured party as soon as possible to enable the relevant release documents to be prepared for settlement. 
  • Contracts – If you have key customer or supplier contracts, it may be that there are provisions requiring the consent of those parties prior to the transfer occurring.

Accordingly, it may be necessary for you to contact those counterparties to obtain their consent prior to the transaction proceeding. 

If you are considering selling your business, contact a member of our Private Enterprise team.

05 June 2020
Authors
Tim Scanlan
Partner
Tim is a Partner in our Private Enterprise practice and specialises in private client mergers and acquisitions.

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