Top tips for preparing your business for sale

TIPS FOR PREPARING YOUR BUSINESS FOR SALE

It can take many months or even years to plan a business sale or exit strategy effectively. When preparing to sell your business, it is fundamental to have everything organised and prepared in advance to enable a smooth and organised transaction.

Before putting your business on the market, some key points to consider are:

Structure

The first step is to establish how you wish to structure the sale. This will be determined by whether you will be selling the shares or the assets of the company, and the tax implications of each structure.

In a share sale, the seller should consider if there are assets such as property, intellectual property and contracts that the seller wishes to retain or to be included in the sale. The seller will need to think carefully about how to extract such items from the company before it is sold to the buyer, and whether it will affect the valuation of the company. In an asset sale, the seller will need to list the assets which are being sold which will enable the buyer to be clear on what they are acquiring.

For more information about the differences between a share sale and an asset sale, you can read out recent article.

Purchase price

The buyer will need access to recent financial information for them to form a view on the value of the company and commit to a purchase price. If the accounts are several months old, the buyer will likely expect to see accounts covering the period between the last accounts and the date of the sale, such as management accounts. Having prepared consistent accounts will also make the due diligence process easier for the buyer.

Similarly, keeping up to date with tax returns and keeping the necessary records will enable the buyer to carry out effective due diligence on historic and current tax filings.

Employees

In a share sale, the employees will be inherited by the buyer as part of the company; and the employer remains the same. The seller should ensure that accurate and complete records of staff files, including all employee contracts (signed by the employee), records and policies are maintained and kept available for the buyer’s review.

We would advise on information which should not be disclosed under GDPR rules.

In an asset sale, relevant employees will automatically transfer to the buyer under the TUPE Regulations (Transfer of Undertakings (Protection of Employment) Regulations). The regulations protect relevant employees on such a transfer and the seller must be clear with the buyer as to how many employees are in place and provide the “Employee Liability Information” no later than 28 days before the transfer is due to take place. For those employees that the buyer does not wish to inherit, the seller will need to ensure that appropriate termination arrangements and/or settlement agreements are in place on completion.

We advise on the TUPE implications of a business sale, if applicable.

Handover

Some transactions will involve a clean break where the seller will cease any relationship it has with the company. Other transactions will see ongoing business relationships with the seller, where the seller provides handover services for a period after completion. In such circumstances, a service or consultancy agreement can be negotiated as part of the sale. Any seller should consider, at an early stage, whether they are prepared to offer a handover period to an incoming buyer.

Due Diligence 

It is good practice for the seller to check current contracts for any uncertainties or anomalies. Employment contracts, customer and supply contracts and any legal contracts will need to be reviewed for any outstanding issues or problems that may derail a potential sale.

A key factor for any buyer will be the right to use any trademarks and intellectual property associated with the company. It is important for the seller to check that their intellectual property is registered and up to date.

Taking these steps and allowing time to prepare is paramount to increasing the value of the company business and will enable the seller to present an appealing proposition to potential buyers.

For more information, please call us on 020 4571 8630 or email us at hello@birdilaw.com. Alternatively, please take a moment to complete our free enquiry form.

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