Preparation is key

Aug 28 2007 by Zoe Rayment for The Journal, Evening Gazette

THE process of selling your business should start well in advance of making any approaches to potential buyers.

Thorough preparation will facilitate the sale process and maximise the price paid.

In basic terms, the preparation process will involve an examination of all elements of the business and of your personal financial and tax position with a view to ensuring that there are no problems or issues that will delay or prevent the sale, or give the buyer an opportunity to reduce the price.

A buyer may expect to see a clear business plan and a strategy for future growth.

Any projections should be robust enough to stand up to scrutiny.

In fact, part of the purchase price may depend upon these projections being met in the future.

You should look at the internal systems with a view to reducing costs and increasing profitability.

However, any cost-cutting or price increases should be maintainable as any short term measures employed to attract a buyer will be spotted and if the sale falls through, you will be left with the consequent problems.

If cost savings are not possible, then as a minimum, management information systems, accounting and credit control procedures should be working effectively.

It is important that you continue to invest in the business and run it as if you were going to own it in the future.

Letting the business grow stale or suffer through lack of expenditure will be spotted by a sensible buyer.

It is also important to start liaising with your accountants early. They will help to ensure all the business’s and your personal tax liabilities are in order, which is of great importance.

You should review all material contracts with customers and suppliers, (are these in writing?), ensure all employment contracts are in place, consider the banking arrangements and ensure any mortgage on the business can be removed at sale. You should also address and resolve any actual or threatened litigation. In addition, are all patents, trademarks and domain names properly registered? Or, are the terms on which the business uses any intellectual property on licence from a third party clear and secure?

Succession is another key area. Try and ensure that the business can survive without you. Although the buyer may want you to stay on in a consultancy role for a year or two following the sale, you should not be indispensable to the business. The more indispensable you are, the greater the risk to the buyer.

A suitable management structure with appropriate delegation and supervision is essential. This may also include incentives, both to retain key personnel long term and to focus those individuals assisting with the sale process.

Naturally, all of the relevant issues cannot be addressed here, but hopefully we have conveyed some idea of the importance of early preparation. As ever, it is important to seek advice as early as possible. An investment in good advice early on will prove very valuable in what may turn out to be a once in a lifetime process.

Zoe Rayment is a member of the company property team at Blackett Hart & Pratt in Newcastle. For more information, contact her on 01325 466794.