Preparing your exit strategy - How to prepare your business or company for sale

With the current uncertainty surrounding the British economy, it is fair to say that businesses are considering their long term options, with many now looking to sell.  Naushad Rahman, Partner in our Company Commercial team, explains some basic steps you should bear in mind when preparing for such an eventuality, and how we can support you, your business and your employees through what can be a traumatic transition.

Understanding your motivation for selling will be valuable information not only for prospective buyers but also for other professionals advising you throughout the transaction, such as accountants and tax advisors.  Being well versed in understanding your objectives means that the legal documentation can be drafted in your favour, minimising your liability and risk exposure to incorporate any beneficial tax restructuring steps. 

You will also need to give consideration to those around you, such as your employees, shareholders, managers and co-directors.  Clarity on your objectives at the outset will lead to a more efficient completion process and a more streamlined transaction for all of those involved. 

Understand the value of your business

Obtaining a professional valuation for your business is always worth undertaking. The valuation will refer not only to the profitability of your business, but also the business practices that you have in place.  Your price will likely reflect some of the following factors:

• Profitability, turnover and other assets
• The strength in your future business plan and customer base
• Size of the business
• The sector that you are in and your position in the current marketplace
• How quickly you wish to sell
• The ability in your key management team to move the business forward

Consider the ways to sell

Once you have a value for your business and a better understanding of the market, you can assess the different options available to you to sell it.  You may be able to find a private-equity buyer or a private investor, or you may consider a management/employee buyout. 

You may also need to decide on your future involvement: do you wish to sell the entire business or keep a small stake in it?  Depending on your role in the firm, a buyer may wish you to remain as a partial owner for consistency and confidence for the employees and customers. 

Review your accounts and legal position

The financial history of your business is one of the first things that a potential buyer will wish to review and you should have up-to-date records for at least the last three financial years, including:

• Company reports
• Valuation of any assets
• Turnover figures
• Profit and loss figures
• Any debts owed and the creditors concerned
• Forecasts for the future

Any legal documentation that you require to operate should also be readily available, for example:

• Compliance certificates
• Licences
• Property leases
• Intellectual property registration
• Trademarks and patents

During the legal due diligence process any existing contracts for employees, suppliers and customers would typically be reviewed, and any ongoing litigation resolved.

Review your business efficiencies

A potential buyer will be looking for a well-run and efficient business, with modern and reliable systems; no matter how keen they are, if they need to invest heavily in technology once they become the new owner, this could impact on the final price.  Reviewing the current procedures regarding your phone system, IT, invoicing, credit control and HR can highlight some areas for improvement to make your business more appealing. 

Consider your employees

Your employees keep your business moving, so ensuring they feel secure and confident during the changes will be important in order to maintain their loyalty up to the point of sale and beyond.  Receiving appropriate legal advice before making any announcements is key to minimise rumours and uncertainty amongst the workforce. 

In order to sell your business, you will be looking for advice you can trust from experienced professionals.  On a business sale your choice of solicitor (who will effectively be leading and/or project managing the transaction and the other professionals involved) will be key. Here at Warner Goodman LLP we are leaders in this specialism.   We will advise you on the preliminary documents (e.g. confidentiality and exclusivity agreements and Heads of Terms) required, undertake the due diligence and prepare the principal sale documentation, with all your objectives in mind giving you user friendly, sensible and pro-active commercial advice.

As a matter of course we will also connect you with various other professionals in our network, as well as to our colleagues in our other Commercial departments, such as our Employment Law and Commercial Property teams. 

If you are considering selling your business/company and would like to discuss it more with Naushad, contact her today on 023 8071 7409 or email naushadrahman@warnergoodman.co.uk.