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10 Housekeeping steps to prepare your business for sale

Ross Brymer, a solicitor in our corporate team, highlights ten ways you can prepare your business for sale. 

Pre-planning the sale of your business can alleviate time, stress and legal costs and will reduce the risk of potential buyers chipping at the price due to unexpected issues.  The following 10 considerations will help you prepare for a potential approach:

  1. Legal Issues and Documentation
    Ongoing litigation is a risk for any potential buyer and so a seller should try to ensure that all legal disputes are resolved and all legal documentation is sound. A seller should also review the company’s terms and conditions, employment contracts, articles of association and shareholder agreements to try to filter out any inconsistencies before a transaction kicks off.
  2. Management and Employees
    If the business cannot operate without the seller then there is effectively no business to sell; a buyer should be buying your business, not your services. A buyer will want to see that the management team is well trained and that sufficient systems are in place to deal with the effective operation of the business.
  3. Intellectual Property (IP)
    Intellectual Property forms a significant aspect of many businesses. In preparation for sale a seller should ensure that a clear record of all IP owned by the company can be produced. A seller should record all registration details and consider registering any logos or patents that have not yet been registered. You should make sure any domain names are transferred into the name of the company to prevent any delays or issues during the transaction.
  4. Finances
    It is vital that the company’s accounts and other financial records are in an organised state. All filings should be up to date and any due tax liabilities should be paid prior to sale. Any bad debts of the company should be considered when reviewing finances, a buyer will request records of outstanding debt during the due diligence process and a high level of debt may deter potential buyers.
  5. Assets
    In preparation for sale, an accurate inventory of assets should be compiled. Each asset should be considered to determine if it is well maintained or needs to be replaced and to establish whether any assets are leased. If assets are leased, the consequences and timings of termination should be considered. In owner-managed businesses it is common for there to be an overlap between assets owned by the company and those owned by the seller. Any overlap should be rectified pre-sale to prevent confusion or concern.
  6. Contracts and Clients
    Any potential buyer will want to carry out due diligence on the company’s top customers and suppliers. A list should be put together with any documents or contracts in support. A buyer will want confirmation of any continuing obligations on the company and it is advisable to collate supplier contracts so they can be produced to a potential buyer.
  7. Premises
    Whether you are selling a property together with the business, or ending a tenancy, it is advisable to consider the current property contracts in place and seek legal advice if necessary.
  8. Banking
    If the Company has any current loan agreements or charges it is recommended that prior to entering into a sale transaction the seller liaises with the bank to ascertain any repayment terms and how to release existing charges. In preparation for sale the seller should ensure it has copies of all loan agreements, associated security documents (such as debentures or legal charges) and any guarantees given by the company or any third party to secure the company’s liabilities.
  9. Compliance
    In preparation for sale a health check should be carried out to ensure that the company is compliant with all applicable legislation. The applicable legislation will depend on the type of business – for example, in the case of a nursery the seller would need to ensure that DBS procedures were strictly complied with and that Ofsted requirements were met. If the company relies on IT of any kind then it is advisable to ensure that clear IT policies and a formal disaster plan have been implemented. Complying with relevant legislation will reduce the need for a seller to indemnify a buyer.
  10. Statutory Registers
    It is a legal requirement to keep the company’s statutory books up-to-date and every potential buyer will want to inspect these prior to completion. A seller should ensure that the statutory books are properly maintained as any inaccuracies will hold up the transaction and may increase the risk of losing potential buyers.

If you are thinking of selling your business and would like to discuss any aspect of this article please contact the FSP corporate team.  We would also recommend you speak to your accountant well in advance of any sale to consider whether any tax planning to mitigate the tax liabilities on sale can be put in place.