Four points to consider when selling your business

Taking some time to prepare for a potential sale will make a business more marketable, increase its value and enable the transaction to proceed more smoothly. Four points to consider are:

1. Who are you likely to sell to – a new entrant to the industry, competitor, or investor? For example, a new entrant or investor is likely to want a business that is self-sustaining whereas a competitor will be more interested in acquiring the business’s clients and merging operations.
2. Can the business run without you? Although owner operators will often be required to continue to offer their services to the business during a transition period, it is important for them to reduce the business’ dependence on them so that the full value of the business can transfer to the buyer.
3. Are the business’s systems well-maintained and are legal obligations being complied with? Many owners of small businesses focus on delivering products and services at the expense of financial and regulatory record-keeping and compliance. However, potential buyers will carry due diligence exercises which will unearth deficiencies such as incorrect company books or failure to issue employment contracts. Such discoveries may cause delays or even cause the buyer to lose confidence in the business.
4. How much do you want to realise financially in a sale, and how much risk are you prepared to take to achieve a high price? Owners are often flattered to receive offers for their businesses so, without a clear view on the business’ value, they may agree to sell undervalue. Increasingly, buyers are seeking to reduce their exposure by negotiating deferred payment or earn out provisions, which load risk on to the seller. Sometimes, a bird in the hand is worth two in the bush!

It is therefore advisable to seek legal and accounting advice well in advance of a potential sale. A good corporate and commercial legal practice can assist business owners in addressing the challenges above by:

• Familiarising them with the sale process;
• Strengthening the business’s contracting documentation, thereby adding value to its customer base;
• Undertaking dummy due diligence exercises to enable them to identify and address systems and compliance issues; and
• Together with the business’s accountants, helping them to set parameters in terms of price and its payment.

If I or any member of the Commercial Property team can assist, please do get in touch on 01258 459361 or email mark.howell@blanchardsbailey.co.uk