- 26 September 2023
- Posted by: Elaine McGrath
- Categories: Commercial Law, Commercial Property, Corporate Restructuring, Family Succession and Governance, Mergers, Acquisition and Investment
Thinking of selling your business? Set yourself up for success
Most business owners will have put their all into building their business and it will often be their most valuable asset. Making the decision to sell is a significant one. There is a myriad of reasons why the decision might be taken but whatever the reason, it can be a challenging experience. However, preparation and planning will set you up for success.
1. Pre-sale structuring
It is important to review how your business is structured to ascertain whether it works for your objectives. The structuring may have tax implications for both you and the buyer. Therefore it may be advantageous to undertaking some restructuring before you go to market to make your business more saleable and the sale more tax efficient.
Some examples of issues to consider:-
- Are you selling shares or a trade? There are risk, tax and stamp duty implications for each.
- Is there a holding company structure? If so, is the holding company the seller or the company being sold?
- Is there property and trade in the one company? Do they need to be separated? A purchaser may not want to buy the associated property or you may want to retain it.
- Are there non-trading entities in the group being sold? This may affect the availability of certain tax reliefs.
- Are there large cash reserves in the Company? You will need to consider how to deal with these in a tax efficient manner.
2. Valuing your business
A business is only worth what someone will pay and thus ultimately the value will be set by the buyer. While, most sellers will have a magic number in mind they can often have a biased view of the value of what they have built. To avoid disappointment it is important to have realistic expectations in this regard. You need to consider what is for sale (see structuring above) and to consider the factors that a buyer will take into consideration in determining the price for your business. It is important also to understand the tax and transaction costs that will apply to the headline price.
3. Due diligence
Any buyer will want to carry out financial and legal due diligence. It greatly improves the efficiency of a transaction where the sellers can produce information in a comprehensive, coherent and efficient manner.
Therefore in advance of any sale we recommend that sellers carry out an internal audit of their records to ensure that all required information is readily available. Key areas include:-
- Financial information – This will be crucial for the buyer to make an assessment of likely future performance. The quality of the financial information could make or break a transaction.
- Employment – Do all employees have contracts? Are they fit for purpose eg do they include appropriate restrictive covenants or IP and confidentiality protections?
- Intellectual property – Is all IP including trademarks, domain names, phone numbers used in connection with the business properly registered and in the ownership of the business. Do employee contracts appropriately protect business IP?
- Material contracts – Are the terms of material contracts in writing. If not why not?
- Corporate governance – Is the business fully compliance with its corporate governance obligations including the maintaining of statutory registers and CRO filings?
4. Management team
While we all like to think we are indispensable, a prospective buyer will want to see that the business can continue and thrive notwithstanding your exit. Therefore strong policies and systems and reliable management team will be important.
5. Manage expectations
Sellers often underestimate the roller-coaster of emotions that can be involved in selling a business they have built. Over the course of the transaction emotions may run from pride and satisfaction to loss and grief.
The transaction process can be long and arduous and will often take longer than expected with many sellers becoming overwhelmed or frustrated with the process. However, the more you have prepared the smoother it will run.
6. Get advisors on board early
If you are thinking of selling your business, get in touch with your advisors early. This will save time and money in the long run as they will guide you through what can be a complicated process and set you up for success.
Reddy Charlton LLP can assist you with all aspects of your business sale from preparation to completion. For further information contact Elaine McGrath email@example.com