Preparing a Company for Sale

Preparing a Company for Sale

Preparing a company for sale is a practice that is commonly overlooked by owners and, as a result, businesses are often sold at a value beneath their full potential.

How can I prepare my Company for sale?

The purpose of preparing a company for sale is to assess its current position and identify at any early stage any potential issues that may prove to have a harmful effect later down the line. By doing this, you may be able to improve the value of your business to ensure that you obtain the highest possible price whilst ensuring that the company is in the best possible shape.

Below are just some of the simple steps you can take to ensure that your business is as sellable as possible:

1. Financial Statements

Ensure that the financial statements of the business are current and as accurate as you can get them. 

Can you account for and back up your figures? Are all your previous accounts, figures and tax returns in order as well as your year to date figures? Your financial statements should be clear and presentable. Prospective buyers will want to review your financial figures. They want to know if they can make the payments on the business and still make a living.

2. Management and Competent Employees

It is essential to a buyer that a potential business investment would be able to succeed without the founder. Therefore it is worth a significant investment in time and attention to put in place a competent management team who will be able to cope in your absence. Furthermore, ensure that you leave behind a team of employees who have a full understanding and knowledge about the business and how it operates. Expanding the management capabilities beyond the executive level reassures buyers and ensures a seamless post-sale transition.

3. Intellectual Property Rights (IPR)

Your company will be surrounded by intellectual property. Take time to go through your list of intellectual property to ensure that the necessary registrations are in place and that your IPR is fully protected. It will be one less worry for the buyer to know that everything has been registered and those registrations have not expired.

4. Customers and Contracts

A potential buyer will want to ensure that key customers will not take their business elsewhere following the departure of the current owner.  It is advisable to speak to your regular suppliers and customers and put in place any written agreements if not already done so while identifying and documenting any terms and conditions of trade.    

5. Business Premises and assets

A potential buyer will want security and protection and therefore you will need to confirm that the legal status and tenure of the current business premises is defined and that any leases / licenses where appropriate are in place. Obtain all documentation relating to ownership of equipment as well as warranties and guarantees. When valuing equipment such as vehicles ensure that you review relevant depreciation policies to obtain an accurate value of the vehicles are obtained. 

6. Business records and company administration

Over the course of a company’s life, keeping up to date records may have taken a back seat next to the day to day running of the business.  It is therefore advisable to go through all company statutory books and records, updating and amending where appropriate so that they are fully up to date, written up and properly maintained, and that minutes of all directors’ and shareholders’ meetings are adequately recorded and filed.

7. Review the current Memorandum & Articles of Association.

When transferring ownership, you will need to look at the articles of association and any shareholders’ agreement which often include provisions for buying and selling the shares in your company for example, is common for a company’s articles of association to contain provisions that require shares to be offered to other shareholders before offering them to a third-party purchaser, so it is important to check that you are not in breach of such provisions when selling your business.

8. Resolve Outstanding Litigation as Quickly as Possible

Ongoing legal claims can be a thorn in the side of a seller therefore, as much as possible attempt to settle all legal claims that are either ongoing or pending. At the very least, you should be able to show to a buyer that the situation is being proactively worked on with both parties attempting settlement. 

9. HR and Employees

Time and time again, we come across businesses where employees are working on the basis of a verbal understanding. Putting in place legal contracts and employee handbooks / policies which identify rights of the employer and employee will prevent any misunderstandings and disagreements.  Furthermore, a potential buyer will be unlikely to want to take on a business where the terms of employment of its staff have not been defined.

Finally, get your solicitor to check it over

Obtain a Due Diligence checklist from your professional advisors in order to begin preparing the documentation, evidence and information that will be required as part of the sale process. Speak with your solicitor about the process and what is to be expected from you. Then once your business is all in order, you can start scouting for a potential Buyer.

It is more crucial than ever for owners to plan ahead to maximize the enterprise value of their company. If the past several years have provided any lesson to sellers, it is that business valuations are at the mercy of the marketplace and business owners will want to be ready to take advantage of market timing capitalising on inaccuracies or concern they may have with the business. Be aware and don’t let this happen to you.