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Things to consider when selling a business

You’ve worked hard to make your business what it is, but you’re now ready to move on. So you list it for sale, accept an offer, receive the funds and hand over possession. Sounds simple, right? Not always.

There are many things you should consider if you want to achieve the best price, minimise your ongoing risk, and ensure your business will have the best opportunity to thrive once sold. As each business is different there is no ‘one size fits all’ approach.

Things to consider include:

  • Why are you selling? Probably the most important question, this can affect how the transaction is structured and timing.
  • Are you replaceable? Many business owners have unique and integral knowledge and skills that may be difficult for a purchaser to learn or replicate. Remove that key person, and the business suffers. It can be important therefore to devise an exit strategy, perhaps by employing and training a potential new owner for some time (often years) before the business is eventually offered to them. Depending on your business structure, a shareholders’ agreement could record that the shares of the business are transferred to your successor in parts over time.
  • Are you selling the shares in your company, or just the assets of the business? Selling shares can be simpler, but can include more risk.
  • Your business accounts and turnover figures should be up-to-date and accurate. You will usually be asked to provide a warranty that the turnover figures for the last 12 months are accurate.
  • Landlords and tenants on good terms sometimes overlook completing the proper paperwork to renew a lease. It is important to ensure you have signed copies of the lease together with any deeds of assignment, renewal and rent review. A purchaser will typically want to ensure there are several rights of renewal available so they can be confident they won’t be forced to relocate shortly after purchasing (especially if there is goodwill tied to the business location).
  • Your landlord can usually stop a sale transaction if they are not reasonably satisfied that the new purchaser will be a good tenant. Also, your liability under the lease often extends beyond settlement if the new purchaser turns out to be a bad tenant.
  • Do you own everything your business needs to operate? Is any plant or equipment leased or owned by the landlord? If so, these need to be disclosed and you need to ensure that they can be assigned to the purchaser (if they so require).
  • What is happening with your employees? Do you have employment agreements in place? Do you expect the new purchaser to take over all existing employees? If not, will you need to make redundancy payments?
  • Do you have all the consents, licences, permits, certificates or authorisations required to carry out your business?
  • What is your business actually worth? Have you valued the assets? What is the goodwill in the business worth, and how much of that is tied to the business itself, to you as the owner, or to the physical location? With that knowledge, what can you do to ensure you can sell as much goodwill as you can to the new owner?

Finally, when do you need to sell? A common theme here is that there are many things you can do to make your business more attractive (and therefore more valuable and easier to sell), but they can take time. Seek advice early to ensure you are on the right track.

Source: Legal Client Newsletter #4

If you would like more information about selling or purchasing a business, please contact us on 07 349 6393 (Rotorua) or 07 579 5258 (Tauranga).

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Thursday, November 19, 2015

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