Preparing a business for sale

Having worked hard to build a valuable business – it may be tempting to think that exiting your business and enjoying a well-earned retirement is simply a case of waiting for the right offer to come along. However, as with building the business, careful planning is likely to pay dividends.

Paul Matthews, head of the WHN’s corporate and commercial team, explains what you need to consider and put in place before you actively start offering your business for sale.

While there will always be business owners who receive an offer which they can’t refuse at a time when they genuinely had no intention of selling their business, they are very much the minority.

Making the important decision to sell your business in advance and setting a timescale for retiring provides a valuable opportunity to do some important planning and preparation. There are significant benefits in making these preparations as early as possible.

Start planning in advance

A prospective buyer will most likely wish to carry out extensive due diligence on the business in relation to both legal and financial issues. Taking the time to think about what the buyer is likely to ask and making sure that the relevant information is up to date and readily available, (with any issues identified and resolved), will help to provide the best possible impression with the prospective buyer.

This will also help to make any prospective sale transaction swifter and smoother and may also have a positive impact on the offer you receive for the business.

From a financial point of view, a buyer is likely to want to see that the business is profitable, preferably also on an upward curve, and that forecasts are being met. As a buyer will want to see several years of financial information relating to the business, it makes sense to start talking to your accountant as soon as possible (ideally, several years in advance of your anticipated exit).

Taking stock of legal matters and requirements

From a legal point of view, it makes sense to carry a thorough review of the business with the assistance of your solicitor to identify any legal issues and take appropriate steps to put them right.

Many of these issues may potentially cause a significant delay in a business sale if you are left having to take steps to resolve them while the transaction is under way.

For example:

  • Do all your employees have written contracts of employment? It is a legal requirement that all employees are given written particulars of employment. It doesn’t create a good impression if you are having to admit that you haven’t complied with this.
  • Do you have full copies of all material ongoing contracts relevant to the business (including any ‘small print’)? A prospective buyer is going to want to carry out a full review of the terms of any material contracts. You will be very much on the back foot if you are struggling to locate copies if asked.
  • Have material contracts been signed where relevant? If you have important long-term arrangements with suppliers or customers, for example, the prospective buyer will want to know the supplier or customer is signed up. Similarly, with employment contracts, the prospective buyer will want to know the employee has accepted the terms (including any restrictive covenants).
  • Do you comply with data protection rules? This remains quite a hot topic following the relatively recent introduction of the General Data Protection Regulation (GDPR). You are likely to be asked for quite a lot of detail as to the policies and procedures that the business has in place to ensure compliance.
  • Do you have appropriate policies and terms in place? Check you have all the necessary policies in place that are relevant to your business, for example, website terms of use, health and safety policies and privacy policies.
  • Are you able to evidence ownership of any material intellectual property rights? For example, registered trademarks and domain names.
  • Do you have appropriate evidence of ownership or right to occupy your premises? In whose name is the title or right to occupy and what implications does that have for the proposed transaction (for example, are any intra-group transfers needed)? In the case of leasehold property, how long is left on the lease (this may be an issue if the prospective buyer regards the property as material to the business and there is limited time left on the lease). Do you have all necessary consents and permissions for the use of the property, any alterations carried out etc?
  • Are there any disputes, court or tribunal proceedings relating to the business? If so, consider whether any steps can be taken to resolve these ahead of any sale.

Review your business structure

You should also think about the management structure of the business well in advance of any exit. Many small businesses rely very heavily on their owner(s) and if the owner(s) are looking to retire, that is likely to be unattractive to a prospective buyer. Think about putting in place a structure and systems which will help demonstrate that the business can continue to work effectively without you.

The considerations set out above are illustrative examples of the many things that can be done to smooth your exit from the business and to maximise its value. To effectively prepare your business for sale and to achieve the best possible outcome, it is important to obtain expert advice from a solicitor, your accountant and tax adviser at the earliest opportunity. As with running and growing your business preparation and planning is key.

Further information on retirement planning for business owners can be found in WHN’s blog post: What are the retirement options for a business owner?

Paul Matthews specialises in corporate and commercial transactions, including company and business sales and acquisitions and management buyouts. If you are considering stepping down from or selling your business, contact Paul to discuss your options and to start planning on 0161 761 4611 or by email: