Thinking of selling your business?

You’ve set up your business and you want to move on now. But what do you need to do to sell your business. Alia Ali of A City Law Firm has some advice.

If you’re thinking about selling your business, the process can proceed far more smoothly and in a more cost effective way if the business owner has sufficiently prepared their business for sale. This applies whether you’re selling the assets; goodwill; shares (which is an option if the business operates through a company) or all three.

Preparation – due diligence by the Buyer

It is advisable for a buyer to investigate the business/company that they are seeking to acquire. This “due diligence” process will involve the buyer raising specific written enquiries which the seller will respond to by providing written replies and copies of relevant documentation referred to in such replies. As such, it’s advisable to have your lawyer and accountant prepare these in advance and pick up any gaps or issues that would concern a Buyer.

For example, a seller will need to get together:

– copies of agreements entered into with suppliers and customers;

– copy of any terms and conditions that apply to the business; inventory of assets/equipment owned or hired;

– if any equipment is hired you will need to provide copies of the hire/hire purchase agreements; details of employees and copies of their employment contracts;

– details of pension scheme(s) in operation, copies of handbooks, trust deeds;

– documentation related to business premises (freehold title/ copy of lease);

– details of any registered or unregistered intellectual property associated with the business (copyright, trademarks, domain names etc);

– details of the computer equipment (hardware and software) used by the business and confirmation of whether you own such equipment or have the appropriate licences;

– details of any policies/procedures/registrations that apply for example in respect of health & safety and/or data protection.

Having documented ownership of your trademarks and company names, exhibiting shareholders agreements and employment contracts will all work towards supporting the idea that yours is a transparent and organised business that the Buyer can confidentially purchase.

As well as the legal due diligence review, a buyer will, in conjunction with the parties’ accountants, carry out a financial due diligence. Consequently detailed financial information will need to be disclosed, eg Business accounts, management reports, loans and securities in place. The extent of such disclosure will vary depending on whether you are selling the assets of your business or are seeking to sell the shares in the company.

The objective of the due diligence process is to enable a buyer to make an informed decision about the proposed purchase/acquisition. i.e. at the end of the review the buyer will have a clear idea of the assets and liabilities of the business and the financial position overall. Inevitably the clearer the replies and the presentation of the documents the more it will support the Buyer’s view that yours is a business worth buying.

Are you prepared?

If you’re looking to sell your business and you have received an offer from a prospective purchaser, how easy would you find it to provide them with the information that they require? Make sure you have these key documents signed and up to date; have secure debt collection methods to keep your book debts to a minimum and have documented policies in place.

To help simplify your sale, thereby reducing stress levels, get your business organised now. Regardless of any sale now or in the future, a well-run and legally compliant business should already have in place the documentation referred to above. Legal health checks are essential to keep your business compliant and to enable its development.

*Alia Ali is a commercial solicitor at A City Law Firm.

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