When it comes time to sell your business you want to ensure that you get a good offer and that the sale goes through smoothly. You do not want your business to be one of the many of thousands of businesses that do not sell or sell for considerably less that you had hoped.
Working with professionals that are experienced in business sales will help but as the Seller you have a huge part to play in the successful sale of your business.
Understanding the process and what is involved is crucial to achieving a successful business sale.
There are essentially 3 MAIN STAGES OF SELLING A BUSINESS …
- Getting your business ready for sale
- The Contract Stage
- Settlement
Understanding what needs to happen in each of these 3 stages and being well prepared before you embark on each stage will help to ensure a successful business sale.
This article deals with getting your business ready for sale …
STAGE 1: GET YOUR BUSINESS READY FOR SALE
The first step in selling your business is to make sure that your business is ready for sale. This is crucial step in ensuring the successful sale of your business and should not be overlooked.
We regularly come across issues in a business sale that should have been addressed by the Seller before the business went on the market (more commonly when the business is being sold privately without a broker). If you sell your business through a broker they will analyse the business beforehand and identify any matters that are likely to negatively impact upon the sale price or cause problems down the line.
A Buyer will almost certainly carry out a thorough due diligence of a business before they commit to buy it, usually during a due diligence period under contract, and you can guarantee that if there is a problem, their advisers will find it.
Each issue with the business that is discovered will erode the Buyer’s perception of the value of the business and doubt will start to creep in.
Here are some tips on what you can do to get your business ready for sale:
Conduct a thorough Sellers Due Diligence
Engaging a commercial lawyer to conduct a Sellers Due Diligence early on in the piece can be useful in flushing out and addressing any issues.
The purpose of Sellers Due Diligence is for the Seller and their advisors to investigate the business, its assets and business relationships to make sure all issues, including some that may not have even been thought of, are ironed out before the business goes on market.
At the very least you should:
- Ensure that the business name is registered to the Seller (for example an old business partner may still have it in their personal name or it may simply not be registered). The same goes for any trademarks.
- Discharge any old PPSR charges (for example from previous supply arrangements) so you don’t need to provide the Buyer with covenants or delay settlement.
- Ensure that all key contracts are documented – handshake arrangements have no value to a Buyer so it is important to get all key customer and supply agreements in writing.
- Address any issues with your lease. The Buyer may decide after reviewing the lease that it is not ‘satisfactory’ and not go ahead with the assignment.
This is likely to occur where the lease is onerous or if the lease term is too short and the Landlord is unwilling to amend it to provide for further options to renew or grant the Buyer a new lease for a longer term.
There are other things that can be reviewed in a more in depth Sellers Due Diligence, depending on the nature of the business, for example:
- the current employment contracts;
- arrangements in place with suppliers;
- client agreements; and
- licences and permits required to operate the business.
As well as looking as the legal aspects you will also need to engage with your accountant to review the financial aspects of the business. Nothing will make a Buyer run for the door more than not having your finances ready.
If you need any assistance with your business sale or purchase, or with any other commercial legal issue please contact Helen Kay at helen.kay@riselegal.com.au or call 0402 318 033 for a free no obligation chat.
Related articles: Sales Agreements. The importance of warranties
