Time to harvest your business?

Article by Scott Kennedy, Director Cleaver Fulton Rankin

scottkennedyWith Harvest very much in the mind of the food industry at this time of year, it’s also a good time to think about your own business and whether the time might be right to sell. Selling can realise the value you have put into a business and reap the benefits that a sale can bring. Below are 10 top tips to consider if you are thinking about selling your business.
1. Non-Disclosure Agreement – Get any potential buyer to sign up to one. It prevents them from disclosing confidential business information to third parties, therefore protecting your business should the sale not proceed.

2. Heads of Terms – once a potential buyer has been found, it is worth putting together ‘heads of terms. These are the agreed principles both parties intend to be reflected in the written contract. Don’t sign these without a solicitor reviewing them first – if an agreed term is not set out in the heads of terms it can be difficult to include it afterwards.

3. Identify the value in your business – think about where the value in your business lies. Is it in your assets; your business contracts/goodwill; your people; your location or the uniqueness of your brand? Recognising this at the outset allows you to focus your own due diligence, ensuring everything is in order to realise the maximum possible value.

4. Consider the best way to sell – get advice from a tax advisor to ascertain the most tax efficient way of selling your business, eg, via an asset sale, or if you operate via a limited company, a share sale.

5. Consider what you want to sell – you may not want to sell all of your business assets, so decide if you want to retain ownership of any asset. For example, you may wish to retain the business premises for your own use, or lease to a potential buyer.

6. Control – be aware that key commercial trading contracts such as exclusive distribution and service contracts usually contain ‘change of control’ provisions which can enable the other party to terminate the contract automatically on a change of control of the business. If these contracts are significant to the business, how the counterparties are approached will need to be carefully considered.

7. Charges/Security – does a bank/lending institution hold any security over your assets? If so, you will need to speak to the specific lending institution before any sale of those assets and obtain appropriate releases.

8. Financial Accounts and Records – liaise with your accountant to ensure your financial accounts and records accurately reflect the current state of your business and are accurate and up to date.

9. Intellectual Property – does your business use intellectual property which is necessary for its function? If so, ensure that such IP is either owned by the business or that a valid licence is in place. Remember, there will be goodwill in your business name so consider how to manage that on a sale, especially where it is a family name. If a potential buyer is allowed to use the name, you will likely be restricted from using it in a business context going forward. However if the buyer is prevented from trading under that name, they may feel the business is not as valuable.

10. Advisors – finally, instruct advisors who have extensive knowledge of buying and selling businesses. If you involve your advisors from the outset, it can make for a much smoother process, and ultimately, a successful exit.