Securing a successful business sale
How to achieve the best available price

Planning is the key to securing a successful business sale. When a business is sold, any well advised potential buyer will wish to undertake a full due diligence process in order to obtain as much detail as possible regarding the business they are seeking to acquire. In view of this, it is common practice to undertake a 3 to 5 year grooming period in order to present a business favourably, thereby achieving a maximum return on what has often been decades of time and investment.

So, how do you groom a business for sale and achieve the best available price? The key is to identify the important areas within a business that need to be reviewed. Sound commercial legal advice can enable a vendor to present a business to potential purchasers in the best possible light, and thereafter achieve the maximum purchase price for their business.

A buyer will want to ensure that the businesses customers are of a sufficient calibre. One sign of a good customer is that they pay invoices rendered to them on time. Invariably most businesses have customers that pay late, and as such a business should have efficient credit control procedures in place.

A buyer will also want to ensure that a business is stable in order to minimize the risk of their investment. A vendor should therefore ensure that informal deals with suppliers and customers are turned into formal written contracts on favourable terms, and any dependence on a few large customers or a single source of supply should be minimised.

If any business is either the subject of or considering litigation, the uncertainties involved are likely to affect the view of any potential purchaser. Therefore, any contentious matters should be considered and advised upon as part of the grooming process.

A business position when contracting is strengthened if it has a set of standard trading Terms and Conditions which are bespoke to its sales activities and which it validly incorporates into any contractual relationship it enters into. Conducting business in this way will in turn strengthen a business position should any litigation proceedings be brought against it or should it have to commence any such proceedings. Hence, businesses which trade using such Terms and Conditions will potentially be more appealing to potential buyers.

If a business premises are leased, potential buyers will be looking for the lease to be easily transferable to and for the lease to not contain any restrictions or obligations. Commercial leases are often lengthy and complex legal contracts, and in view of this it is of paramount importance that they are carefully reviewed.

It is imperative that the Statutory Books of a Private Limited Company are in good order. This means that any decisions of the Company should be correctly decided upon and recorded in minutes and resolutions, and requisite documentation should be filed with Companies House.

If a business leases its equipment under a hire-purchase or similar arrangement, as with premises potential buyers will be looking for these to be easily transferable.

A business that has any branding associated with it or deals in products that it has created, may have potential Intellectual Property Rights attached to these business assets. Some Intellectual Property Rights will arise automatically provided certain legal requirements are met, such as Copyright which can subsist in the design of any branding associated with a business. However, other Intellectual Property Rights require a process of registration to be undertaken for example, with respect to branding this could be protected through registering a product name or logo as a Registered Trade Mark and with respect to innovative products Patent protection can be applied for.

Potential buyers will be looking for businesses that have properly protected their Intellectual Property Rights. This will require a business to not only consider how best to protect these Rights, but also to take action against any competitors who have breached these Rights so that the business has not wavered any protection afforded to it and thus not prejudiced its future position.

If a business is transferred as a going concern then the business employees will transfer by virtue of the Transfer of Undertakings Protection of Employment Regulations 2006. A buyer will wish to be taking on reliable, competent and efficient staff. In addition, it will wish those personnel to be locked in and committed to the business it is seeking to acquire.

Vendors should make it a key requirement that they have appropriate staff at all levels, particularly at management level. If a vendor is actively involved in the day-to-day running of a business, a purchaser may be keen to retain their services for a hand-over period after the sale. Many vendors will not want to stay on once they have sold the business. In this situation, the vendor should ensure that it has staff at a senior level that can run the business and have developed a sound management team. Businesses with such a management team will be more appealing to buyers because if the owner is not critical to the business then the buyer’s investment risk is clearly much reduced.

Once appropriate staff have been found, steps should be taken to secure their retention. Appropriate and reasonably drafted employment contracts can assist in this regard. One way of protecting a business is to provide for restrictive covenants which protect the business should an employee seek to leave their employment and compete with the business activities.

If a business has employment contracts in place, then it is advisable to have these reviewed to check that they are compliant with current legislative requirements. The business employment policies and procedures should also be checked to ensure that no potential claims will arise in respect of breaches of employment legislation which could, in turn, reduce the attractiveness of the business to purchasers.

Need more information?
Please email or contact us with your enquiry.