So you’ve decided to let go of the reins, prepare for a new chapter in life, and sell your business. If you think it’s not going to be easy to do this, then – unless you’re incredibly lucky – you’re quite likely right. However, it’s important to remember that you shouldn’t sacrifice the opportunity of maximising your sale just because it gets frustrating down the pipeline.
There are plenty of challenges you’ll be facing when selling your business, but most of these can be easily avoided by having as much information as you possibly can about the many pitfalls of the process and getting expert legal advice. So, before you take the first step, here are six mistakes you want to avoid when putting your business up for sale:
1. Neglecting confidentiality
It’s essential that you protect confidential information in the pre-contract disclosure as much as it is part of your due diligence. You don’t want to compromise the optimal value of your business when it is on the market. You want to progress a possible sale in a confidential way so there is no impact on your relationships with customers, suppliers and staff. You will need a carefully drafted confidentiality agreement.
2. Not being ready for due diligence
Invariably purchasers will wish to undertake due diligence. This is a process whereby before committing time and expense to a review of their business key terms such as price are agreed and a formal contract completed but with due diligence as a condition. The due diligence condition will set out the scope of matters the purchaser will need to be satisfied on before the contract becomes unconditional. You need to anticipate what buyers will be looking for and make sure you are ready to provide it.
3. Not foreseeing warranties you will be required to give
You will be expected to provide a range of warranties covering various aspects of your business. They are set out at length in the standard sale agreement form and include matters such as turnover, asset ownership and council notices. You will need the extent of warranties you will be required to give explained to you and be comfortable that you can give them.
4. Not consulting with staff
While it’s important not to breach confidentiality, it’s still important to ensure that all your employment obligations are met, and this will include consulting with staff. There are mandatory consultation obligations which we can explain to you.
5. Underselling
It’s very important to understand what the market value of your business is. A number of factors come into play including your industry, your location, competition from similar businesses, the economy, and the current marketplace. Do not just rely on your own judgement. Get good accounting advice on the value of your business. Always do your homework before you go to market.
6. Vendor finance
There are many disadvantages of vendor finance – you won’t get a clean break from your business and you’re effectively lending money to strangers, to name a few. In some cases it may be that vendor finance is your only option. If it is your last option, never fail to get adequate security for your assets to ensure you can recover the money down the road. You also need to protect against spurious breach of warranty set off claims. Be very cautious before offering vendor finance.
Gillespie Young Watson – Commercial Law Experts
Navigating your business sale can be tricky, but considering how much hard work, time, and capital you’ve put in to making your business a success, diligent preparation and proper planning are essential.
Gillespie Young Watson provides the best strategies to ensure the legal side of your commercial affairs are in order. If you’re looking for professional legal advice and assistance on all things commercial law, contact our team today by ringing 0800 GYWLAW.
