Business owners decide to sell their businesses for a variety of different reasons, whether as part of their retirement plans, a change in personal priorities, a need to realise the value that has been created, or simply a desire to do something different.
Whatever the reason, they all have in common the fact that, if they want to maximise the value they can get out of it, they should start planning for the sale as early as they possibly can.
Getting your lawyers, accountants and other expert advisors involved from the start will help you avoid the common mistakes that often arise during the sale process. It’s crucial to seek good legal and tax advice before any Heads of Terms are signed, so that they can be drafted clearly, and proper consideration can be given to all the issues that need to be addressed as soon as possible.
It's equally important to properly prepare for the due diligence process. For example, do you have formalised, written agreements in place with your key clients and customers? You might have worked with them for years and your relationship has become one that’s based on trust, rather than contracts, but that’s unlikely to be enough to give potential purchasers the comfort they need that these relationships will continue after they acquire the business.
Other key documentation, such as property leases and employment contracts should also be collated, reviewed and updated as required at the very beginning of the sale process, if not before.
In addition to legal due diligence, financial and accounting due diligence will inevitably be an important part of the process, with any potential purchaser naturally wanting to look at your accounts and other financial information to see exactly what they’re buying.
But if this potential purchaser is a competitor, as may well be the case, you’ll probably not want them gaining an insight into your confidential information before any agreement has been signed.
Putting a confidentiality or non-disclosure agreement in place, and anonymising any particularly sensitive information, should be considered and discussed with your advisors before you start revealing details about the business. Certain details can always be revealed later.
You also need to consider how you want to leave the business, which might be by way of a ‘clean break,’ or could involve working through an agreed handover period to ensure a smooth transition for the purchaser and the business.
It goes without saying, but how the purchase price is paid is something you really need to carefully consider. If you’re not receiving the full amount for the company or business up front, what protections should you be putting in place to deal with any situations where the purchaser defaults on the rest?
There are never any guarantees that the sale of any business won’t come with a few bumps along the way. But by taking a planned and structured approach, being clear on what you want (or don’t want) and getting your expert advisors involved right from the start, you can certainly help make the entire process as smooth as it can be.
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