Another episode in the Q&A video series for SME’s and business leaders.
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Intro: I’m Stuart Ayling. In this episode of Vectis Q&A I’m speaking with Helen Kay commercial lawyer and Partner in Creevey Russell Lawyers and we’re looking at getting your business ready for sale. It’s not simply the case that every business is always ready for sale, because quite often there are important things that need to be done from a legal perspective to maximize the value of your business for a potential buyer.
Stuart: Well I’m back with Helen Kay for this episode of Vectis Q&A. Helen is a commercial lawyer and Partner at Creevey Russell Lawyers, and she’s passionate about helping business owners avoid unnecessary risks in commercial contracts. Thanks Helen this is an interesting segment we’ve got planned.
Helen: Thanks Stuart, thanks for having me. And yes this is probably my favourite segment.
Stuart: Yes well the topic for this particular episode is getting your business ready for sale. What needs to be done? What’s the legal component? And what are the steps a business owner should be taking to get their business ready for sale.
But look, just let me ask upfront, a lot of business owners might be thinking well my business is always ready for sale, I’d sell it tomorrow if someone came along with the right price. So what what do you say to that?
Helen: I’d say that would be fantastic and you know some very well run businesses most likely would be in that situation if they had the forethought to actually have a succession plan.
Unfortunately a lot of the businesses that we see on the market, especially ones that aren’t going through business brokers, who would’ve got everything shipshape, absolutely are not ready to be put on the market.
We regularly come across issues in business sales that should have been addressed before the business went on the market. And the problem with that of course is it’s the buyer that then unearths the issues and raises them with the seller, at which time their contract might be conditional.
So all these little doubts start to creep in, and this is where we see the buyers just go ‘ahh, it’s all too hard, this isn’t the business for me’.
Stuart: OK Helen, so when a business owner is looking to get the business ready for sale what should they be looking at doing?
Helen: What they need to do Stuart, is they need to start doing what I call a Sellers Due Diligence, and they need to start having a really good look at their own business.
They’ve been working in it, working on it for years, but what they need to do is start thinking about what’s the buyer going to be looking for. Much like a house sale, the buyer is going to open the cupboard and look under the rug.
And it’s going to happen with the business as well, basically in terms of the legal side. So they should be doing a legal health check on their own business, so, is the business name registered? Is it registered to the current owner of the business, not a previous owner who has since disappeared?
Do we need to trade mark our logos and really get robust IP protection? Are all our key contracts that we’re shouting about, and are part of the value the business, are those key contracts actually in writing and not a handshake agreement?
Handshake agreements have no value to a buyer.
And then looking at the Personal Property Securities Register which has a list of any third parties who may have charges over the business. Let’s start getting rid of the old ones because that can be a bit of a red flag to buyers that perhaps the business was operating on credit.
Stuart: How much time would it normally take to go through those sorts of steps that you were just mentioning?
Helen: Not long at all. For our clients if they came to us and said they wanted us to help them get ready for sale, within a few days we’ll collate all those searches, we’ll do a report and we’ll just say look these are the major issues and this is what we need to do to address them.
It’s relatively quick. It’s a relatively cheap process as well, those searches don’t cost a great deal. So it really is much better that you find these things out before, address them, rather than find them out when you’re in that contract window, of the buyer trying to sort out finance and deal with the landlord as well as doing their due diligence.
Stuart: Yeah, that’s true. I suppose it’s very much like what you were saying comparing it to selling a house, where you really need to present a house in it’s best light to make sure that any potential buyer is going to sort of see the potential in it, rather than as you say having things in the cupboards which may be shouldn’t be there in having a bit of mess in places where it shouldn’t be. So this process is very much like that isn’t it? Making sure that everything’s in order so the incoming owner has confidence in what they’re actually buying.
Helen: Absolutely. I liken it, some people talk about getting your ducks in line. I actually talk about getting your business in a box, ready, so you’ve got all your key contracts in there. You’ve got your copy of the lease, you’ve got all the business name registrations etc. that’s all in this box essentially which nowadays of course is an electronic data room or just PDF’s that we send to the other side.
The sooner we can get those across when we’re under contract, we’ve got a confidentiality agreement in place, the better, because we can present everything for our seller clients and then the buyer really has no room to move because it can’t be deemed unsatisfactory, because everything’s documented, everything’s valid, everything’s in date.
Stuart: OK excellent so if a business owner is looking to sell and they’re thinking well I really need to get my ducks in a row as were saying to make sure that everything is ready to present to a buyer, what tips would you be giving them? I know you’ve mentioned already some specific things which should be addressed and should be included but how should a business owner go about doing that?
Helen: The first thing a business owner should do is talk to their trusted advisors, business advisor, lawyer, accountant, just let them know that’s on the horizon, because each one of those people will have some good hints and tips of what they need to be doing.
From my perspective I would be suggesting that we do this very brief sellers due diligence for them just to make sure that everything is ready so that there’s no issues.
And it could be that for example if we find something in the lease, the lease might be coming up for the end of it’s term which isn’t going to be very attractive to a buyer, that we actually then have a proactive plan of let’s go and speak to the landlord and see if we can get some more options negotiated for you so that when the buyer comes on board they’ve got a longer lease term.
Stuart: Yeah that’s an excellent point and I think even just from what I’m hearing a few things that you’ve been mentioning there Helen about certainly making sure that there’s longevity in the lease, but also that if there are key clients that you have maybe an unwritten contract or maybe even a written contract which may not be fully covering everything that’s being done or being provided by the business it’s really important make sure all that’s documented. So that sounds like really good tips for a business owner thinking about selling.
Helen: Yep. Absolutely. Be prepared and let’s us find the problems, let’s not let the other side find them, and then we can proactively manage the process ourselves.
Stuart: Excellent, well look on those wise words I think we’ll wrap up this episode, so appreciate your input once again Helen. Helen Kay from Creevey Russell Lawyers thanks for your time.
Helen: Thanks again Stuart.