Eight things to think about when preparing your business for sale

Planning to sell your business? Here are eight things to think about when preparing your business for sale, to make sure the transaction goes smoothly. 

Selling a company is no small project, whatever its size. Firstly, the commercial terms of the deal must be agreed with the buyer, and the sale and purchase agreement and other related documents will be much negotiated between the parties (and their solicitors).

However, it is the due diligence process that will often take up most of your time if you are selling. The buyer will, understandably, want to investigate the company and the business that it is buying to ensure that everything is in order, and it is not unusual for legal due diligence questionnaires to be dozens of pages long.

Sellers often find that so much management time is taken up with responding to these enquiries that the business suffers, which is detrimental to both seller and purchaser.

So it’s wise to get your house (or, rather, your company) in order in advance, before time becomes of the essence.

Eight things to think about when preparing your business for sale

Being able to present a clean, transparent and well organised company will reassure a buyer and may help to reduce the post-completion warranty risk borne by you. Here are eight things you need to think about when preparing your business for sale, in order to achieve as smooth a transaction as possible.

1) Corporate governance

Are your company’s statutory books in good order? Ensure that they are complete and up to date, including the registers of members, transfers, allotments, charges, directors and secretaries. Also, check that all Companies House filings are up to date, and in particular that neither the annual return nor the accounts are overdue.

2) Banking and finance

A buyer will want details of the company’s bank accounts and borrowings. Make sure you have copies of the facility letters for any loans or overdraft facilities as well as any mortgages, debentures and other charges given by the company, even if they will be discharged at completion.

If you don’t have copies of these documents, you should be able to obtain such from the lender.

3) Trading arrangements and business

If relevant, ensure that your company has current licences for all its activities and that they are all paid and up to date.

Your buyer will usually want to see copies of all contracts to which the company is a party and collating these is a time consuming process, so it is wise to start early. A good place to start is to make a list of all client, supplier, hire purchase, equipment finance, leasing, services, utility agreements and any others. Then find copies of all the written agreements and any variations thereto.

4) IP and IT

What intellectual property rights does the company own and/or use, and are they valuable assets? Consider both registered IP (such as trademarks, domain names, etc) and unregistered IP (such as copyright, unregistered design rights).

Ensure that any registrations have not expired and that you have a copy of the relevant certificates. If the company has a website, who operates this and who owns the domain name and the rights in the web design? Do these need to be transferred to the company prior to its sale?

A purchaser will also require details of your computer system, including the hardware and the software elements. Compile a list of all computers, servers and other hardware used by the company, noting especially if any is not located on the company’s premises.

A list of all software programmes, such as operating systems, booking systems, client databases and payroll systems should also be prepared and, if possible, copies of the licences relating to such software should be collated.

5) Insurance

A buyer will no doubt want to see copies of all the company’s insurance policies and you should ensure that the company has up to date insurance covering all usual risks (including employer’s liability insurance, public liability insurance and insurance over the company’s premises).

If any claims have been made, contact your insurance broker and ask for a status report on them.

6) Health and safety

Ensure that your company’s health and safety policy is up to date and that correct procedures are in place for carrying out that policy. Check also that the company’s accident book is up to date.

If any investigations or reports have been made by any local government or regulatory authority, details will have to be produced, together with information as to how the company has remedied any deficiencies.

7) Employees

A buyer will want to see a complete schedule of all employees of the company. Information usually provided on such a schedule will include the name, date of birth, start date, salary, job title and full or part-time status of each employee.

You will also be asked for:

  • Right to work documentation for non-UK citizens.
  • Details of employees who are leaving or on maternity leave and of those to whom offers of employment have been made.
  • Copies of employment contracts.
  • A copy of any staff handbook.
  • Details of all benefits offered to employees and of any bonus schemes.
  • Details of any pension scheme operated by the company.

There are many laws and regulations governing an employer’s obligations to its employees in the UK and the buyer will be particularly concerned to ensure that the company has complied with all of them. Making sure that all employees have been provided with written terms of their employment is a good place to start.

8) Property

A purchaser will want to investigate title to any property owned, leased or used by your company. It would be helpful to draw up a schedule of properties, stating whether the properties are freehold or leasehold and, if they are leasehold, details of the number of years outstanding on the lease and the name of the landlord.

Get a head start on preparing your business for sale

Nothing highlights how many loose ends and unresolved issues a company has quite like selling it. However, collating the documents and information suggested above will give you a good head-start in tying up those ends, which in turn should make the due diligence and disclosure processes much more painless for both you and the purchaser.

Jessica Nugent is a Partner at Goodman Derrick LLP, the London law firm.