Most entrepreneurs fantasise about the day that they will be able to sell their business and cash in on their success. While it might be easy to get caught up daydreaming about those plans, the reality is that there will be a lot of work involved if you want to ensure a smooth and profitable exit from your business. Whether you’re ready to retire altogether, start up a new venture, or want to jump a sinking ship, you’ll need to have concrete steps in place to make sure that the sale goes according to plan.
Imagine you are stepping into the shoes of a potential buyer. What would you be concerned about if you were thinking about purchasing your business?
A buyer’s due diligence enquiries will typically include:
- conducting searches of the sellers, such as:
- an ASIC search of any seller company to check that it is registered and capable of entering into agreements;
- a PPSR search of the seller to check whether there are any registered charges against your business. You should note that suppliers can now register PPSR charges without notifying you, so there may be registered charges that you were not aware. If charges exist, they will need to be released prior to settlement;
- checking whether the court registers for any current court proceedings against the seller;
- conducting bankruptcy searches of the sellers or the seller company’s directors;
- checking whether the business holds all appropriate licenses, and if so, whether those can be transferred; and
- reviewing any contracts that the business has entered into, e.g. reviewing the security of any supply contracts or customer agreements, or if your premises is leased, checking the flexibility of the terms of the lease agreement, and whether their tenure will be secured by registration.
Ideally you should attempt to minimise any of these risks associated with your business before it goes on the market. Remember that less risk = higher value.
If you’re planning on starting up a new venture, you should consider whether you will be operating a competing business, and if so, what kind of restraint of trade clause you are willing to agree to in the business sale agreement.
Measuring your worth
Once those risks are under control, the next step is to consider the ways in which you can maximise the value of your business. To do so, you need to give proper thought to what exactly gives your business value in the first place.
When deciding which assets are for sale, remember that assets may also include the benefit of agreements such as franchise agreements, supply or distribution contracts, and intellectual property.
You should also consider how your business is structured, and whether a re-structure could make the business more appealing to purchasers. If you are selling shares in a company, have you reviewed the shareholdings in the company, and considered whether an adequate shareholders agreement is in place? Will you retain any shares after the sale?
If necessary, you should consider obtaining an independent valuation of the goodwill of the business and its assets so that you know how much the business is really worth.
While you may be happy to be selling out, it is understandable that your employees may not feel the same way. It is important to remember that your people are also your assets, and maintaining employee morale can be crucial to maintaining value during the sale process.
To alleviate their concerns about job security, best practice is to:
- decide on an appropriate time to tell them about your plans;
- consider whether any employees need to be made redundant and if so, follow the correct process to implement any redundancies (in accordance with Fair Work requirements); and
- review the terms of the sale of business contract so that you are familiar with the process for transferring existing employees to the new business owner.
As you can see, there are a lot of factors that should be considered before you place your business on the market. At Sajen legal we have the skills and expertise to assist you from day one, when you first start thinking about your exit strategy, and we’ll be there throughout the process to help you follow those plans to completion.