A new survey has found young entrepreneurs want to build their business up and sell it on. So if you’re considering putting your company up for sale – there are a few things you should consider before parting ways.
Research by private bank Brown Shipley has found a majority of young business owners aim to sell their company to generate wealth, rather than part-own, or create a multi-generational business.
But before entrepreneurs take the plunge, there are legal quagmires that should be borne in mind, otherwise they could cost you more in pounds than pennies if you ignore them.
Here are the main issues you should consider before selling up and moving on:
Warranties should be your biggest concern when selling the business
During the sale process, you will need to disclose information to the buyer via due diligence. It will be necessary to give some form of written statement, a warranty, which gives the buyer some contractual protection over the value in the business. This information will relate to the target company such as the accounts, details of employees, premises and the commercial contracts with suppliers and customers.
For example, you may give a warranty as to the status of a commercial contract which you believe will deliver a specific financial outcome. If this is inaccurate or false, then the buyer could claim for breach of warranty if they can prove the breach and quantify the loss.
Warranties are extremely technical; and, it is not uncommon for a solicitor to go through each warranty line by line to ensure that a seller is not exposed to the risk of future litigation because something has not been disclosed against a warranty. This can be time well spent if it avoids future claims and the legal expenses of a dispute – never mind the disruption to your early retirement or next venture!
You may need to separate the commercial property from the business
A buyer might not be interested in the commercial property that is used by the business. And there are ways of separating the property from the business.
One of your options is demerging, which is a type of corporate restructuring. This will allow you to separate the business assets the buyer does want, from the assets they don’t want (eg. property). These unwanted assets will form a new company and it can have tax benefits for the seller too. But it will need HMRC clearance first.
You’ll then be able to sell the commercial property separately, or retain ownership if you wish. It will no longer be part of the original business.
Being clear with the seller if you want to stay
It’s normal that some entrepreneurs wish to still work for the business, even though they’ve sold it. It may be for many reasons – for example to help with the transition. Buyers may be very keen to keep you – given your know-how, relationships and specialist skills you’ve brought to the company.
Expectations should be managed with the potential buyer, before you sell, about how long you plan to stay and what your role will be. And this should be drawn up into the final contract too.
Make sure the brand is protected
At least a year or so before selling, you should enhance the IP protection of your assets – for example filing trademarks, patents and copyright protection. This will increase their value, meaning you’ll be able to sell the business for a higher price, and minimise the chance of a buyer pulling out because the IP isn’t readily identified.
Consider the impact on employment protections
It’s also important to consult with employment lawyers who will be able to advise on the employment law aspects to the sale – i.e. Transfer of Undertakings (Protection of Employment) Regulations (TUPE), andhow to reassure employees, and how to avoid liabilities as the seller.
Above are the key issues entrepreneurs should factor into their plans before selling a business. It’s important these all form part of the business exit strategy, and seeking legal advice on these will minimise legal and financial issues arising. It also means you’ll move on to your next adventure far more easily, and importantly, enjoy the fruits of your labour!