Five essential steps when you prepare a business for sale

To paraphrase Benjamin Franklin, if you fail to prepare, prepare to fail – and that certainly applies to selling a business or company. You might still sell it, but you will almost certainly sell it for less.

Selling a business may be the most important decision a business owner may take and it is never too early to bring in quality advisers to assist with the sale process (and possibly to help find potential buyers). This will help to reliably establish the business value and asking price. A buyer will generally ask you to verify what you are telling them, which means you could be liable if it turns out later that the information you provided was inaccurate.

Below are some of the key points you should consider when preparing your business for sale:

1. Source and store historical financial information. This will form the basis of pricing and the better the quality of this information is, the

better chance you will have of achieving your asking price. If you are, or have, a good accountant, then you have a head start. If not, bring one in to prepare this information for you. It will repay the cost and time invested many times over.

2. Refresh your business plan.

You will need a business plan to demonstrate the potential of your business to a buyer, highlighting what and where the growth

opportunities are, the financial projections and future profit projections. A quality business plan in a recognisable format backed by verifiable information is a vital tool to negotiate a decent price.

3. Assemble a strong management team.

A buyer will often want to ensure the business they are buying is capable of operating, and growing, without you. Having a reliable and experienced

management team will be key to continuing to successfully drive the business forward in your absence. This should make your business more attractive to a buyer and hopefully achieve a higher sale price.

4. Compile details of customers and suppliers.

You will need to provide details of key sales and the underlying contracts that back them up (be careful not to give too much away to competitors at the early

stages of the process). Your supply chain can also be critical, and you will need to evidence its resilience. If your business is too reliant on one customer or supplier, this is an identifiable risk, so try to manage that risk if you can. Often contracts can also be incomplete or difficult to find, so get them in order before it becomes a problem.

5. Finesse your legal documents. Legal housekeeping is more important than many think, as a buyer needs to know they are actually getting what they are paying for. The buyer is likely to ask you to stand behind what you tell them through contractual warranties, so make sure that you have the evidence to do so. The main areas to consider are:

• Data protection;

• Property leases or title deeds;

• Employee contracts – particularly for key employees, including details of any share options you have granted;

• Details of pension rights (buyers are wary of final salary pension schemes and will check this area thoroughly);

• Intellectual property rights can be very important for value – ensure you have proper protection or registration for trade marks and patents, where applicable, and that you are not contravening anyone else’s rights;

• Statutory books and key registers – if you are selling a company, the shares are what they are buying and they will need to see these are complete and accurate; and

• Details of any litigation or disputes – and the advice you received around them.

■ Keir Willox is a partner in Shepherd and Wedderburn’s corporate team, based in Aberdeen. For more information, contact Keir on 01224 343 542 or at keir.willox@ shepwedd.com

PREPARATION: Compiling details of customers and suppliers is essential prior to selling any business.