Focus On: Preparing a Business for Sale

21 October 2022
3 minutes

Benjamin Franklin wisely coined “By failing to prepare, you are preparing to fail.” The preparation of a business for sale is vital to present an attractive and profitable enterprise for any prospective purchaser, and to ensure a smooth transaction if a purchaser is found.

Balancing the Books

To assist with the laborious labyrinth of Due Diligence, a business should check that its administrative information is readily available and up to date including its records, filings, and statutory registers. Accurate statutory registers are particularly important when a corporate entity’s shares are being disposed as part of a sale.

A business should also be able to present accurate accounts which provides an insight to the profitability of the business. In anticipation of sale, a business should prioritise sensible credit control and examine its management of existing stock and provisions for bad debt. Any recent disputes, claims or litigation should be investigated to provide transparency to a prospective purchaser.

Existing Customers and Suppliers

It is common for a business to have key customers and suppliers with strong relationships built over years of familiarity and cooperation. However, a prospective purchaser may be wary as to whether these relationships will continue following takeover. A diligent business will seek to expand its range of customers and suppliers in preparation of sale, and to avoid over-reliance on a ‘lone source’ of income. A business should also review the Contracts for each of its customers and suppliers which will be scrutinised in depth by a prospective purchaser.

Property of the Business

If a business intends to sell property as part of a sale, it should ensure that it can provide good and marketable title, and that the Documents of Title for each respective property are available for inspection. If operating from a leasehold premises, a business should review the remaining term of its lease for providing Security of Tenure.

Employment Considerations

The strength of a business is often determined by the security of its employees. Employment contracts should be up to date and company policies, training records and employee handbooks should be correct and available for inspection.

A business should also consider if there are any recent employment issues, which will be relevant to a prospective purchaser. These include:

  • Employees who have been subject to disciplinary action;
  • Employees who have been on periods of long absence;
  • Employees, past or present who have made a claim against the business at the Industrial Tribunal or Fair Employment Tribunal.

Taking Advice

A prudent business will engage with relevant experts who are familiar with its operation. Some of these experts may include:

  • An accountant familiar with the financial operation of the business;
  • An architect or surveyor with demonstrated knowledge of the planning history of the business’s physical property;
  • HR consultants who will be able to navigate through any employment issues associated with the sale.

Attendance to the matters outlined above should be the priority of a business prior to the inception of a sale. A business should be aware that documentation requested in Due Diligence that is either not available, not up to date or requires rectification may substantially impede or jeopardise a sale.

If you require further information or assistance on any of the points listed above, please contact James Boyd in MKB Law’s Corporate and Commercial department.

This article is for general guidance only and should not be regarded as a substitute for professional legal advice.

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