If you’ve decided to sell your business then it’s vitally important that you take all steps necessary to ensure that you protect your assets up to the point of sale and after. Any business represents the sum of your hard work, talent and initiative and opting to sell is always going to be a huge decision, whether you’re retiring, moving on to bigger and better things or simply disposing of a failing asset.
Maximising the realization of your assets and protecting their worth in the run-up to the sale, in a manner which ensures the best possible deal for both you and the buyer of the business should be a priority. The intention is to achieve the best possible price for your business without pushing things so far that you deter would-be buyers.
Alongside this, you need to construct and arrange any sale in such a manner that for the sale to fall through at the last moment, or for the buyer to be able to come and ask for the contract to be rescinded (i.e. for their money back), something genuinely unforeseeable and catastrophic will need to have taken place.
In large part this will be down to ensuring that the contract for the sale sets out in great detail the terms of the sale, and to providing all the information a buyer might need prior to the sale. In those circumstances, it becomes much less likely that a buyer will be able to successfully claim that you’ve failed to comply with the terms of the contract.
Clarify the sale
The first thing you need to do is clarify exactly what it is you’re going to be selling. If the business in question has not been incorporated – i.e. if it is a sole proprietorship or partnership rather than a limited company – then what is being sold will be the following:
- Assets including plant and machinery, premises in some cases, equipment, stock and intellectual property
- Liabilities such as any loans which have been taken out to purchase the stock held in the business
If the business has been incorporated then the purchaser, upon purchasing the shares in the business, will purchase everything owned by the company. This will include liabilities which can be identified at the point of sale, such as debts, as well as potential future liabilities which will be harder to identify with any certainty and may represent a point of disagreement – or at least detailed negotiation – between buyer and seller. Future liabilities of this kind might include any obligation to fix or replace faulty goods which have already been sold within a specific timeframe.
If assets rather than shares are being sold then there’s a chance that you, as the seller, may retain ownership of some part of those assets. When dealing with a business such as a factory packed with equipment and stock this distinction may seem simple to make. But someone selling a business such as a website, for example, may still own the copyright of some of the content on that website, and would therefore still be able to use it in the future. If the buyer wants to purchase that copyright you may be justified in asking them for more money.
While the purchase of an incorporated business may simplify questions such as these in one way it also throws up its own complicating factors. The buyer, for example, will want to investigate the corporate structure of the business and ascertain exactly what kind of options are held by particular individuals.
In all cases, a buyer will want to carry out due diligence in order to ascertain the true value of the business, and this is both their right and something which they will have to pay for and arrange.
Before this happens, however, it would be wise to carry out your own form of due diligence in order to establish the true worth of the business you’re about to sell, particularly as you’ll then have a number to come back with should the buyer try to get you to lower any initial asking price.
When carrying out your own version of due diligence it’s important, in terms of reaching a figure which truly reflects the worth of the business, to ensure that you include intangible assets. These could be anything from the good will of the customers who return to you on a regular basis to a list of said customers and/or suppliers and the research you’ve carried out into your chosen sector over the years.
In a business based in a professional service industry the bulk of the assets are going to be intangible assets of this kind, such as the reputation the business has established for delivering expert advice, so it’s vital that you’re able to calculate an honest reflection of the worth of these assets.
Contracts
The worth of any commercial contracts your business is operating under at the time of the sale will depend upon the nature and detail of those contracts. It’s not always the case, for example, that a buyer purchasing a business will automatically purchase ongoing contracts. In some cases, the contract might include a clause stating that the other party can cancel or rescind that contract if the business is sold. If this is the situation, then it could dramatically impact the attractiveness of your business as a proposition or reduce the price you’re able to fetch.
For that reason, it would be a good idea to check which contracts are transferable without notice and which require notice or consent. For those contracts which require consent, the consent needs to be given in writing before any sale goes through. Occasionally, a contract may need to be renegotiated entirely before the sale, particularly if this is what it takes to persuade an important customer to stay on board post-sale.
Experts
One piece of advice which overarches all other advice when preparing to sell your business is to seek the advice and input of experts. The accounting and legal divisions of your own business should be involved from the beginning of the process, but often – such as when dealing with intellectual property rights – it may pay dividends to consult third-party experts in the field as well. Such professionals will be able to confirm whether you actually own all of the IP you think you do and, if not, to work with you to purchase any rights before the selling process starts.
Should you be considering the sale of all or part of your business, our experienced team here at Buckles is able to offer you any advice or guidance to ensure your assets are protected, and the best deal is achieved for all concerned. Please contact us for a confidential consultation.
