Selling your Business: Preparation is the key to maximising price

If you are looking to sell your business in 2022, or perhaps just assessing your options for the future, there are a number of preparatory steps you can take to help maximise the asking price, as well as decrease the costs and delays that can be involved with the sales process.  

Below are just a few factors and tips for you to consider:

Business Value & Due Diligence:

One of the biggest hurdles of the sales process can be getting through the due diligence and proving the value of the business. A business that is able to provide clear, up-to-date business records will generally be able to speed through any due diligence process with greater ease and less cost.

A buyer wants to ensure that they are getting value for what they are buying, and consequently if your records are not clear and up-to-date, then the due diligence will generally be more extensive and they may not proceed or seek to reduce to the price to take into account the risks they perceive. 

Also, if finance from a bank or other party is being sought, then without the provision of certain documents (material contracts such as leases, employment agreements with key personnel, locked in supply agreement, franchise agreements, licenses, registered trademarks or patents etc) they may not consider lending the required finance. 

A good idea is to proactively consider what are key elements to the longevity and success of your business. Any key documents to the business should be current and in writing.  Any material contracts necessary for the business to operate should be locked in. Copies readily available to provide to any party doing their due diligence. 

The other asset - Intellectual Property:

As the intellectual property of a business may hold substantial value, if steps have not been taken to protect your ownership and rights in the intellectual property, their value will decrease.

Conducting an internal audit is a good step to take to work out a list of what intellectual property is involved in the business, who owns it and whether it is protected. If there are key logos and/or branding for the business, then appropriate Trademark registration should be obtained. Any key materials produced by third parties may mean copyright belongs to them rather than you (this includes even if you have paid them to create the work), unless you have had the rights assigned to you. 

If Trade Secrets are an important part of the business, then proving you have taken steps to protect this, which may mean showing confidentiality agreements by any person who may have access to such may give comfort to those who are paying good money for the business. If you have patents, design registrations, trademarks, then having a clear register setting these out will decrease the time the parties having to back up your claims and also support that you have taken protection so that you can get value out of the business. This is something you may want to tidy up before you list the business for sale.  

Pre Sale Information Strategy:

Before entering into any negotiations, you should work out a strategy of what information you will hand over and when you will first require them to sign a confidentiality/non disclosure deed or enter into a contract with confidentiality provisions.

You do not want to give access to your valuable confidential information and intellectual property unless you know the party is not only serious but also has signed confidentiality/non disclosure agreement.  

Speak with your accountant as to the best way to  sell – sale of shares or sale of business assets. (Generally a sale of business assets is the easier process but there are positives and negatives both ways- consequently it is also important to talk with your lawyer before you make a final decision).  Also speak with your accountant as to their recommendations on apportion of the purchase price in the contract of sale (Goodwill, Stock, Plant and Equipment, Work in progress,). Then ensure you get legal advice before entering into the contract of sale to include all required terms and any additional protections, they may recommend for your personal situation and the proposed deal. 

What to do now:

So just three steps you can do right now to get you started on the path to maximise your price and get the deal done faster: 

1.     Do a pre-emptive due diligence on your business.

What are the key contracts and agreements needed for your business and are they in writing, current and readily accessible?; 

2.     Do an internal Intellectual Property Audit.

Work out what intellectual property you have, who actually owns it and whether you have sufficiently protected it and have evidence to support that.

If issues arise with your audit or its results, take steps now  towards ensuring you own all rights and hold all required copyright, patent, design and or trade mark rights and/or  registrations and can easily prove this. 

3.     Speak with your accountant and lawyer regarding the negotiation and contract process, making sure a confidentiality/non disclosure agreement or a contract of sale that meets your requirements is first done. 

There you have it! Who knew preparation could lead to something so much bigger? Book in for a Strategy Session with us here at Advantage Partners Lawyers if you are looking to sell this year, and we can help you get on track.