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What should I prepare before selling my business?
Whether you have owned your business for generations or for a short time the decision to sell isn’t always easy.
Once a decision is reached, your thoughts will turn to finding a buyer and dealing with the sale with the minimum amount of fuss and delay possible. Whether you are selling the shares in your company or the business assets, the process can seem rather daunting. There are things you can do to help expedite the transaction and help it to run smoothly. The key is all in the preparation.
Due Diligence when Selling a Business
One of the initial steps that any potential buyer will undertake is a due diligence exercise.
This will be tailored to your individual business, but early preparation will mean you have the information and documents ready, up to date and to hand when they are requested. It also gives you the opportunity to identify any issues, giving you the opportunity to take corrective action in advance. For example, you may need to carry out an asbestos survey of your property, get an Energy Performance Certificate (EPC) put in place, ensure you have full and clear copies of all the contracts relating to the business etc.
If you have a limited company it is important to ensure that the company’s statutory registers are up to date and all the correct filings have been made at companies’ house.
Confidentiality Agreements when Selling a Business
Once you are sure you have all the documentation relating to your business in order, you can then move on to the next stage. At this point you it is advisable to ask the potential buyer to sign a confidentiality agreement before you disclose any information or documents to them about your business. This is particularly true if you are looking to sell to a competitor. The last thing you want is for a potential buyer to misuse confidential information about your business if the sale does not proceed for any reason. This could be very damaging to the goodwill of your business and could potentially lead to the loss of customers and /or employees.
Putting in place an appropriate confidentiality agreement at the very outset ensures the potential buyer is contractually obliged to keep the information and documents you disclose about your business confidential. They can only use the disclosed information for purpose of advancing the sale, they can only share the information with certain people i.e. professional advisors and they are responsible for ensuring that any such third parties who are privy to the information in turn keep the disclosed information confidential and store it appropriately.
There can also be provision included in the agreement to ensure the confidential information and documents are returned or appropriately destroyed in the event the sale does not proceed for any reason.
Once a confidentiality agreement is in place you can move on to the due diligence process.
The due diligence process is likely to be lengthy and detailed. Though this is by no means an exhaustive list, questions will be raised by the buyer’s professional advisors both lawyers and potentially accountants and will cover the following main areas:
Business and corporate structure
Who owns the business? What legal entity operates it? Is there a shareholder/partnership agreement in place?
Books and records
Are the company records and statutory books up to date and available? Is there an up to date asset register?
Are the accounts up to date and filed? Are there management accounts? Have proper provisions been made? Are there any loans?
Are there employment contracts? Can you produce an up to date schedule of employees detailing their start date, salary, holiday entitlement, benefits etc.? Does the business have policies, procedures and a staff handbook? Do you hire agency workers or self-employed individuals? Do your employees require DBS checks? Details of the pension scheme.
Is there any ongoing litigation, complaints, disputes or proceedings with employees or customers? If so, you will need to provide full details.
Is it freehold or leasehold? Who owns the property, the business or the owners? Is there a mortgage?
Supplier and customer contracts
Identify your key customers and suppliers. Obtain copies of the key contracts and ensure that they can be transferred to the buyer.
Do you have a record of the intellectual property used by your business? Think about your business name, logo, website, trademarks, patents and brochures.
What are the insurance provisions for the business, do you have copies of the business insurance, employer liability insurance, public liability insurance, buildings and contents insurance for example.
Has the business dealt correctly with PAYE, VAT and Corporation tax? Is the business up to date with its payments to HMRC?
There are many other questions that with the help of your lawyer and accountant you will be expected to answer.
WSP Solicitors’ expert Company Commercial Team help our clients buy and sell their businesses every day. If you would like further information on our services, please email firstname.lastname@example.org, call 01452 429874 or use the form on this page to get in contact.
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