Welcome to part two on this series of articles discussing everything (legal!) you need to know about selling your business.
In the first article I provided an over view of the entire process, if you missed it you can have a read here.
In this blog episode, I’ll be concentrating on pre-sale considerations.
Your accountant may well be able to advise you of ways to streamline from a financial point of view. Perhaps you need to reconsider staffing levels and grades, removing certain products or services from your offering, etc. Getting this right can potentially make your business more attractive to potential buyers, meaning a quicker sale. However things which are often not always fully considered before putting a business on the market are the ‘legals’. These will vary considerably, depending upon your sector, appetite of buyers, and whether or not you’ve been good at maintaining all necessary compliance and legal processes and documentation in place.
Here are some areas to consider:
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Your own contracts
When did you last review and update your own Terms & Conditions? Taking the opportunity to do this, especially where you have contracts that will run on into the future post-sale, is always a good idea. You ensure that you are up to date with legal compliance, and that your terms are as favourable to you as possible.
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Contracts with others
Where you are contracting on someone else’s terms, such as your telecoms, IT and other suppliers, you may well not have actually read the ‘small print’ when you signed up. Having a general review of these gives you a better understanding of any potential areas of risk, the opportunity to re-negotiate them, or to move supplier.
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Your Lease (if applicable)
How long is left on your lease? What are its terms? What’s the condition of the building like? Have you had any issues with your landlord? Depending on the type of business, buyers may or may not want to keep on the premises long term. However if there are any outstanding issues with your landlord when you are looking to sell, this will obviously at best affect the sale price, at worst deter buyers completely.
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Your employees
Do all of your employees have written contracts? Are there any verbal terms that have been agreed over time that are not recorded in writing? Do you have a full set of employee policies? Are there any issues with specific employees? Or with employee retention?
Ensuring that all employee records, contracts, etc. are full and up-to-date will make your business far more attractive to a prospective purchaser.
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Disputes
Is the business dealing with any issues? With an employee, a supplier, a customer? Ensuring that these are wrapped up before a sale will certainly make the process smoother. Some buyers will be put off completely by any form of dispute, whilst others might be more pragmatic and ask for this to be covered by an indemnity from you, or a reduction on the sale price. Either way, clearly getting matters settled before a sale is the best way to maximise your position.
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Your share structure and governing documentation
Often there have been verbal agreements that people will own shares, that have not been formalised. Or the company is still using the Model Articles it was incorporated with. Perhaps Minutes of important decisions were not kept, or some Board decisions might benefit from shareholder ratification before a sale goes through. Or perhaps you have a Shareholders’ Agreement and there are specific processes and procedures that need to be followed pre-sale, or waivers that need to be given? Are all shareholders consenting to the sale, or are some being joined in through Drag Along provisions? Are all Companies House filings up to date?
Whatever the scenario, good company administration will make your business more attractive a prospect.
Looking at these areas well in advance of a proposed sale will not only put your business in better shape legally, but will go a long way to making the sale and subsequent due diligence process smoother.
If you would like to discuss a pre-sale review of your business, contact me at karen.blakesley@cognitivelaw.co.uk