February 22, 2021

Preparing Your Business for Sale

Written by Peter Lynn

Selling a business may be the most significant and most important decision in your business life. Getting the right advice at the outset is vital, and the following crucial matters need to be considered:

How Much Is My Business Worth – How Do I Value It?

We can assist with this and also help get the right advice at the outset from expert valuers or accountants specialising in your field of activity. Valuations depend on a multitude of factors. Also, we can ensure an agreed sale price is documented in a heads of terms document, so all parties are aware of the core aspects of the deal.

How Do I Increase the Valuation?

Profitability and asset accumulation will always help valuation, and we can help you get things on a better footing. A key element is Goodwill (which isn’t easy to quantify) – this intangible asset encompasses the totality of many elements such as the company’s brand, customer base and loyalty, reputation in the market and its employees. We can help you maximise the value over and above the ‘book value’ of the company.

Who Are My Prospective Buyers?

Many sellers overlook potential buyers who may wish to enter into negotiations. It may be worth going to tender to seek out various interested buyers, but we can also help with approaches to sources inside and outside of the company, many of whom may not have been considered.

Share Sale or Asset Transfer?

Business acquisitions will fall into one of these two categories, and we can fully advise on the merits of both.

share sale may be preferable to a seller who wishes to achieve a “clean slate” sale – all assets and liabilities of the company transfer to the buyer, and the sellers have fewer risks going forward. It is, however, common for there to be some guarantee or indemnity going forward.

An asset purchase allows buyers and sellers to “cherry-pick” the assets and/or liabilities they wish to buy/sell. The target company remains in the control of the shareholders, with only the purchased assets/liabilities being sold.

We can help advise on practical and taxation benefits of both      

How Do I Reduce Any Potential Liability as A Seller?

This is where an experienced commercial lawyer can make a major difference. The starting position with any business acquisition is the principle of “caveat emptor”, or “buyer beware”.

Sale agreements will contain extensive warranties, guarantees and indemnities, and the negotiation around these is very important. Having experienced advice on hand for the due diligence and disclosure process is vital to avoid massive future claims.

How Do I Keep Legal Fees Down?

By using a law-firm with a proven track record in sales, mergers and acquisitions.  

We work with a range of companies from start-ups to global, multi-million-pound corporations and are best placed to offer legal advice for businesses and business people.

Our team are not only well resourced, but with seasoned lawyers on-board that have extensive, sector-specific knowledge; we are best placed to advise you.

What’s more, by preventing legal problems in the first instance, it will save you money in both the short and long term.

How Should The Sale Be Structured?

Specialist help is needed on such matters as:

Deferred/Staged Payments 

The purchase price is paid in a number of monthly/yearly instalments to assist with the buyer’s cash flow. This may yield a higher overall sale price. We can advise on the security for the staged payments, including personal guarantees, charges on property /assets or shares.

Retention

Careful advice is needed on circumstances where the buyer insists that a

percentage of the purchase price be held in a retention or escrow account for a set period effectively to act as security in respect of claims by the buyer.

Expert advice is needed on the precise wording or even necessity for such clauses.

Earn-Out

We can advise on complex terms to maximise return where part of the purchase price is payable in a period after completion when the target company hits certain financial milestones.

If this is the case, the seller may want to retain an interest in the company after completion to guarantee payment. There are many options to secure a fair return and enforce payment – having an expert fighting in your corner can make all the difference.

The above are just a few considerations, but whatever the business, you will want an experienced and expert team in your corner.

To arrange an initial meeting with our team to discuss your options and plan for a way forward, contact:

01792 450010

[email protected]

https://www.peterlynnandpartners.co.uk/company-commercial/

Peter Lynn and Partners

Preventing Legal problems