SELLING YOUR BUSINESS: INCREASE BUSINESS VALUE AND AVOID PITFALLS
Selling your business? Ensure you avoid common mistakes that can cost you time and money. Learn how to increase business value with Whitney Moore lawyers.
Your business is your pride and joy. You’ve worked tirelessly to build it up from the ground, and now you’re ready to take a step back and enjoy the fruits of your labour. But before you can do that, you need to sell your business.
The process of selling a business can be daunting, but with the proper preparation and understanding of the market, you can ensure that you get the best possible price for the sale of your company.
Here at Whitney Moore Law Firm, we strive to provide our clients with the best possible advice and guidance when it comes to selling their businesses. In this blog post, we’ll be sharing our top tips on how to maximise the value of your business, and avoid any potential pitfalls.
Tips for Selling a Business
Step #1 – Preparation
As with anything in life, preparation is key when selling your business. First and foremost, you need to have a realistic idea of what your business is worth. This can be difficult to gauge, as several factors contribute to your business value. However, it’s crucial to get an accurate estimate so that you can set your expectations accordingly.
Step #2 – Reviewing Your Business
Once you’ve decided to sell your business, the next step is to speak to your financial adviser in order to identify the key assets and liabilities in your business. In order to maximize the attractiveness of your business and the value of the assets it may be necessary to dispose of some assets and liabilities or re-structure your business. This may involve a number of different steps, such as:
- Transferring separate businesses into separate legal entities
- Selling off certain non-core assets
- Restructuring personnel or recruiting in key areas
- Renegotiating contracts and leases
This is referred to as a pre-sale reorganization. The review also includes figuring out what is an essential asset, and a non-essential asset of the business. This will help in the negotiation process, and also aid in preparing the business for sale.
- Essential asset – marketing business.
- Non-essential asset – own office lease.
If you find that you have non-essential assets or assets which do not qualify for tax relief such as retirement relief or entrepreneurs’ relief, you can always transfer them out of the group/trading company. This will help to increase the value of your business, as well as make it more attractive to potential buyers.
The most important thing is that you get professional advice on how to structure the sale of your business, in order to avoid any potential surprises. Hiring a professional advisor, such as a lawyer or accountant, is always recommended when selling your business. They will be able to advise you on the best way to structure the sale, taking into account your individual circumstances.
In addition, you’ll need to evaluate the value of your business. This can be done through many different methods, such as:
- A valuation by a professional advisor
- A market comparison
- A discounted cash flow analysis.
Step #3 – Pre-Sale Reorganisation (1)
If you decide that a pre-sale reorganization is beneficial this involves several different tasks, including:
- Identifying the business’s core competencies and essential assets
- Assessing the value of these assets
- Determining how to best transfer the core assets
- Disposing of non-core assets
- Developing a plan for the post-sale operation of the business
If you decide to dispose of non core assets you will need to take professional advise to ensure the disposal is in compliance with tax, legal and financial requirements. The result of reorganization is that the value of the business is maximized, there should be fewer liabilities for sellers in the SPA – warranty or indemnity claims – and the due diligence on the business should be more straightforward and speedier.
Legal Due Diligence – by the Buyer
Once you’ve got an idea of what your business is worth, the next step is to start the process of legal due diligence. This is where the potential buyer of your business will investigate all aspects of the company in order to confirm that everything is in order.
The due diligence process can be time-consuming, so it’s important to be prepared for it. Make sure that all of your documents are in order and easily accessible ideally on a secure data room, so that the buyer can get the information they need as quickly as possible.
As part of the legal due diligence process, the buyer will normally request to investigate further your business. This is an in-depth review of all aspects of your company, from contracts and employee agreements to intellectual property and compliance with regulatory requirements.
Throughout legal due diligence, the buyer will be looking for any potential risks that could impact the value of the business. Therefore, it’s important to be as open and transparent as possible during this process, so that the buyer can get a clear understanding of your company.
This may include, but is not limited to:
- Shareholder’s Agreements and Constitution – To check that there are no restrictions on the sale of shares, or any provisions that could cause problems down the line.
- Drag Along – To ensure that all shareholders are included in the sale, and that there are no dissenting voices.
- Consents of third parties: contracts, lenders/facility letters, mortgages, and licenses – To confirm that there are no restrictions on the sale of the business, and that all third-party agreements can be transferred to the new owner.
- Employment Contracts/Service Contracts – To check that there are no issues with the transfer of employees, or any restrictions on the business that could cause problems down the line.
- GDPR/Data Protection Audit – to check that the business is compliant with GDPR, and that all data is being stored and processed correctly.
A legal audit can be a time-consuming and costly exercise, but it’s important to make sure that everything is in order before the sale of your business. This will help to avoid any delays, maximise purchase price, and minimise the risk of warranty or indemnity claims.
Share Purchase Agreement
Once the due diligence process is complete, and both parties are happy to proceed, the next step is to draw up a share purchase agreement. This document will outline all of the details of the sale, including the price, payment terms, and any conditions that need to be met.
It’s essential to have a lawyer review the share purchase agreement before you sign it to ensure that everything is in order and that you understand all of the terms. Warranties and indemnities are also crucial to consider, as they deal with any potential liabilities that may arise after the sale is complete.
Selling your business can be a complex and time-consuming process. However, by following the tips in this blog post, you can maximise the value of your business and avoid any potential pitfalls.
If you have any questions about selling your business, or would like to discuss your individual circumstances, don’t hesitate to reach out to our expert lawyers today. We would be more than happy to help.
Whitney Moore is a full-service law firm with its priorities firmly fixed on delivering consistent, high-quality legal services. Whitney Moore was established in Dublin in 1882, and since then, has been a strong presence in the Irish legal market. The firm has gone through various phases of expansion and continues to progress and grow.
If you’re thinking of selling your business, or have any questions about the process, our experienced team can help. Get in touch today to find out more.
If you have any questions about selling your business or this article please do not hesitate to contact Brendan Ringrose, Corporate Partner (Brendan.Ringrose@whitneymoore.ie).