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Ready To Sell Your Company? First Sort Out The Things That Buyers Hate

Can't Find a Company to Buy

Why Haven’t These Things Been Fixed?

As a longstanding UK business broker we know it can be difficult to persuade owners to fix even simple problems with their companies before they put them up for sale. Even when these problems are almost certain to reduce its value.
 
Why Do Easy To Fix Problems Cost Sellers Money?
 
You have been running your business for years, it’s successful and profitable and pretty well organised. Despite this you know that some of your business processes, regulatory systems and contractual relationships could be in better shape. The job always seems to get done without any major problems, and you know it will be a fair amount of work to straighten things out, it just hasn’t seemed a commercial priority to get everything in apple pie order.

Unfortunately these are just the kind of problems that buyers of private companies hate. Think for a minute how your business will look to a potential buyer and his cautious professional advisors. What will they find when they put your company and its balance sheet under a microscope? Problems that will have to be fixed before the deal goes ahead. Problems that will slow things down and cost them money. Systems and processes that will have to be fixed after the sale at their expense. Dubious compliance that might lead to future fines and costs – in our experience buyers tend to focus on the potential maximum cost of a problem rather than how likely it is to happen. At best problems of this type will reduce the price a buyer is prepared to pay for your company, at worst they may walk away.
 
How Do You Protect The Value Of Your Company?
 
The first step is to create a list of the things that need to be sorted out? A careful review of your key business processes, assets and contracts, if necessary by an independent professionals, will quickly identify the main issues. Fixing these before the company is put on the market will make sale negotiations less contentious, and make sure you realise the value of your business.
 
These Are The Areas We Find Most Often Need Attention
 

Employment contracts

Even in today’s “no win, no fee” environment we find companies with no employment contracts, or contracts so out of date they no longer comply with the latest regulations. There are plenty of consultants that will audit all your HR procedures for a small fee, especially if they think there is the potential for a bigger job to straighten things out.

Health & safety

Too many companies, even in hazardous industries, pay lip services to Health and Safety processes until an enforcement notice or an insurance inspection forces them into line. Again there are plenty of H&S consultants who will offer a free first meeting as a sales overhead, including an initial assessment of your compliance.

Environmental regulations

This has been a huge area of proliferation in recent years. Even low risk industries can get caught be packaging and other disposal regulations. There are two things that you will have to do if premises are to be sold, or a lease transferred as part of the sale. Since 2004 every commercial premise must have an asbestos audit – even though you know your building has no asbestos. Since 2012 it is against the law to put a business with owned or leased premises on the market without an Energy Performance Certificate. I know you think both of these are a waste of money, but you can’t sell without them.

Financial records and reports

Are your accounts up to date and ready for due diligence? Do you have management accounts for the latest month in this financial year? Are your accounts prepared by a relative, or by a respected firm of chartered accountants? If you are a multi-product or service firm is the profitability of the different product groups and channels shown in the accounts? Your accounts will be pored over in detail by the buyer’s accountants once you accept an offer (Read this article to understand what happens in financial due diligence). You need to be ready.

Asset ownership

Are all the assets and intellectual property necessary for the operation of the company actually owned by the company? Do you own some of the assets yourself or through a related company, whether for tax or historical reasons? If you do these things will have to be straightened out before sale, or clearly explained in the sales details. We regularly see problems with confused ownership or out of date registrations of trade names, domain names and patents. One last thought on ownership issues – have you registered any limited companies with related names but left them dormant? Buyers will want absolute clarity on all these ownership issues. Confusion will generate doubt and suspicion of sharp practice, however unfair that might be.

Commercial contracts

Do you have important commercial agreements with major customers or suppliers enshrined in formal contracts? If you do it is important to make sure they are up to date and reflect the way things happen now – rather than how things were done a few years ago when the contract was drafted. If a contract has a renewal date in the next 12 months it might be worthwhile completing renewal negotiations before the sale process starts. Most professionally prepared contracts will have a change of control clause. This clause means that the contract will not automatically transfer to new owners of your company – your customer or supplier will have the right to cancel the contract if they don’t like the new owners. This almost certainly means a discussion will have to take place between the buyers and your customer or supplier before the sale completes.

 

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964

 
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