A guide to buying a business

Choosing to sell a business can seem stressful and complicated, but early planning will ensure that you have a structure in place and that you have had time to develop a smart exit plan, you will also be in a better position to refine the business and position effectively, and therefore add value to it, which will in turn make it easier for you to sell. This will maximise your success which is of course the ultimate goal.

It is important not to underestimate the time and effort that selling a business will involve. An important piece of advice is to keep running your business as though you were keeping control if it for the long term. Thus instructing experts at an early stage can assist greatly and can allow you to concentrate on the marketing of the business and running it as you have been.

A potential buyer will be concerned mainly with four aspects of your business, namely: the accounts, your strategy, the management and staff, and the legal and contractual arrangements you have with suppliers and clients. We will discuss each of these aspects in turn below.

The Accounts

The key to the ultimate sale price of your business is current profitability. A potential buyer is going to want comprehensive information regarding this. It is important to ensure that sales, profits and margins are kept in line with expectations and forecast growth; this will ensure that key indicators of the business remain attractive to buyers. Time can also be invested in improving profitability and minimising any risks and also work towards future earnings forecasts. It is equally important to keep reviewing every area of the business; this will ensure that any problems that arise during the sales process or could potentially devalue the business are addressed swiftly and efficiently. Possible issues that may need urgent attention include legal, accounting, tax or environmental issues.

Historic accounting facts are also important and therefore it is important to ensure that areas such as bookkeeping are not neglected. It is easy to overlook such areas especially when all your effort is going into sales and marketing. A potential buyer is going to dig deep into your accounts and will be looking at numbers and contracts and all the detail in between so do ensure that your accounts are prepared to stand the scrutiny of a potential buyer. The accounts need to be clear and straightforward so that a potential buyer understands them.

It may be a good idea to carry out an internal due diligence exercise in order to ascertain whether due diligence may reveal any skeletons to a buyer, this can then give you the opportunity to resolve these issues before they are discovered by a potential buyer’s due diligence.

Strategy

It is imperative that you refine and communicate your vision for the business effectively. This is no doubt a difficult thing to do but the importance of this cannot be stressed enough. It is essential that you are convinced by your strategy, if you are not, the buyer will pick up on this. It may also be wise to consider how costs can be cut without affecting the business. Profits need to be managed so that your business is sold at the point that it looks attractive and secure. Therefore the business needs to be at an optimum level. Other issues that may be easily overlooked but are equally important are addressing operational issues such as are files and records organised well? Is the management structure effective and logical? Is the IT system up to date?

There is no such thing as being over prepared when it comes to selling your business. You need to know your business inside out; this includes knowing how your business works, what your business owns its liabilities, customers and processes. This will ensure that you are in the driving seat when it comes to making a deal.

The Management and Staff

The employee’s- together with the brand, customer and client relationships are for most business their most valuable assets. If you the owner has a crucial involvement in the day to day running of the business, a potential buyer may ask you to stay on, in order to ensure a smooth handover and continued profitability. So if you are looking for a clean break, then it is essential that you have in place a robust and motivated management team, one that will remain just as committed to the business after the sale. It is important also to ensure that morale is high in the lead up to and throughout the sales process, this will ensure that there is a sense of unity amongst your employees and ultimately that the performance of your business is as high as can be.

Legal Issues

Addressing legal issues is absolutely essential. This should be conducted prior to embarking upon a sales process. This is a key part of due diligence, but an area in which many private sellers are often unprepared, thus leading to them becoming unstuck.

The importance of legal housekeeping cannot be stressed upon enough. It is absolutely imperative that all company contracts are completely in order and watertight. This will include contracts with suppliers, customers and employees. You also need to ensure that any property leases or deeds are again in order and watertight. It is useful to instruct a solicitor to go through your legal documentation; they will be better placed to advise you and can check if existing contracts are indeed transferable. Also if you do not have you own standard terms and conditions. You will be liable to the terms of the other party, so you should ask a solicitor to draw up a standard document.

Prior to undertaking any detailed discussion with a potential purchaser, it is advisable to enter into a nondisclosure agreement. This will ensure that any confidential information will be held in confidence by the other part for a minimum of five year period. Therefore if talks subsequently break down, the agreement should state that all confidential information is returned. You can make the non disclosure agreement more detailed and include clauses that provide that the potential buyer will not solicit or hire any of your employees for a period of one or two years after the date of the nondisclosure agreement. The provision of this clause is to ensure that a prospective buyer does not hire your key people if they subsequently decide not to go through with purchase.

A good solicitor will also check and ensure that the prospective purchaser is buying the company in the right and way and importantly are in a position to substantiate any claims that they make. You will want o be sure that they stick with any agreed price and further uphold any promises that are made and also importantly any agreements are legally binding. This will all require expert legal advice.

Lawdit Solicitors have a dedicated team of solicitor’s in place to assist you with selling your business. If you wish to find out more, please contact us today.

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