Selling your business? How to get it sale-ready

Business owners are often considering what the next step is for the company. This may be seeking external investment or, if the price is right, selling the company outright. Before a business owner takes this step, they should undertake an extreme ‘clean-up’ of the company and not just focus on the finances.

At the beginning of a company’s life cycle, the onus is usually on growing sales and building a brand. When the time comes to look for outside investment or to sell, potential buyers will carry out due diligence on the company before committing to the deal and will almost certainly use what they find to negotiate with you on price and terms.

Being sale-ready and keeping your documentation in order is a good discipline to have right from the beginning. Good practices such as this will allow any potential opportunity to move swiftly and presents the business professionally and cleanly to the buyer team. This inevitably reduces uncertainty for a buyer and puts you in a stronger negotiating position.

Getting sale-ready

Before your business can be considered ‘sale-ready’, there are some elements that should be factored into the ‘clean-up’. These include:

Key agreements – Having key customers and suppliers secured under contract provides a buyer with certainty. It is worth reviewing how long these agreements are in place; can they be terminated in the event of a sale of a controlling interest in your business (change of control); and are prices fixed for a length of time or is there a mechanism in place to change prices over time? Some buyers will be keen to avoid key suppliers or customers abandoning ship or using the sale as a negotiation tactic to increase prices in the period following the acquisition. Others may want the flexibility to change suppliers or renegotiate a customer term but having clear terms agreed in writing with your key relationships is important.

Intellectual property – Securing relevant IP rights (trademarks, design rights and patents) protects your business from others seeking to use your name or designs. Licences should be in place and adhered to for any software your business relies on. Not having checked whether you are infringing on other people’s rights (third-party rights) or not having these rights in place poses a risk to the business and may be leveraged by the buyer when it is time to negotiate.

Employees – Employment contracts, benefits and policies should be reviewed, including the retention of staff and what happens to their jobs when it comes to selling.

Identify and manage problems – Contractual disputes, missing licences, and compliance issues should be actively managed. A buyer does not want surprises and will look to see that a dispute or compliance issue is being correctly managed.

Premises and permits – A review of your portfolio allows you to understand value, lease expiry dates, restriction on use, etc. Knowing what you own and ensuring that the buyer is presented with all this information from the outset is key to enable the buyer to assess your business and give a fair valuation. Essential licences or environmental permits should be up to date and made available to a buyer to review.

Data and documentation – As part of the sale process, the seller will present the key information about its business in a physical or (more likely) virtual data room. Your advisors will help you pull this together but having a well organised document management system and crucial documentation accessible and kept up to date will greatly ease the pain and the cost of this process.

Negotiating the sale of all or part of your business is a demanding and challenging process but having agreements and documentation in place in advance, and the key risks dealt with or being actively managed will highlight your business in the best light, minimise risks for the potential buyer and secure the most attractive offer and terms.

If you have questions about getting your business sale-ready, please contact Mary Geraghty.