Preparing for business sale

If you decide to sell your house, you will probably do some work before you even show it to potential agents.   Some work will be cosmetic (mow the lawn!) but there might also be significant work before you sell – perhaps to fix a leaking roof.  You do this work because you want to find a buyer for the best price possible.

In many respects, preparing for the sale of a privately owned business is similar.  Most buyers will investigate the target business (due diligence). The buyer may instruct a solicitor and accountant to assist in this process.  The buyer wants to find out as much as possible about the business before he buys it.  Any potential problems are likely to be identified as part of this process.  Depending on the nature and extent of those problems, the buyer may want a price reduction or contractual comfort (indemnities) (or both) from the seller.  The buyer may even walk away from the deal altogether if a really serious problem is revealed.

So, what can a seller do in advance to avoid problems during the sale process?

Ideally, the seller should imagine what he would be most concerned about if he was buying.  This will depend on the individual business.

For example, a business that relies on the use of intellectual property rights should be legally entitled to use those rights.  This might simply involve checking that there is a formal licence in place with a third party.  Sometimes, though, the issue is less obvious to the seller.  An individual may own intellectual property rights that are commercially exploited by his company. If the company or its business is to be sold, a buyer will expect to find a proper arrangement between the individual and his company – it might be necessary to put a licence or assignment in place.

If a fundamental issue of this type is like fixing the roof, what’s the equivalent of mowing the lawn?  That will be things like ensuring that the terms of important supplier and customer contracts are recorded in writing and that all other records are properly up to date.

If issues like these are sorted out before the buyer carries out its due diligence, the sale process will generally be easier.

A final point worth noting is that this preparation process isn’t relevant only on sale.  A potential investor or lender may well investigate the business as if it were buying it.

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