Getting ready to sell your business? Make sure you settle on time

Selling your business is not necessarily just a matter of a signing a contract. It involves a consideration of all aspects of your business and as a seller the best time to do this is before you have found a buyer.

If you are unsure about what will be expected of you or don’t know what to expect from the sale process, seek advice from a professional who is experienced in business sale transactions. Don’t be afraid to ask your proposed advisor about their experience, you want someone that specialises in this type of transaction.

Presenting your business for sale professionally and being able to supply information quickly will show potential buyers that you are organised and will ultimately lead to a smooth sale process.

As a seller you need to be prepared to let a buyer carry out a due diligence of your business. Due diligence is the process where the buyer undertakes a close examination of all aspects of your business, not just financials but all things necessary to carry on your business day to day.

The easiest way to prepare yourself for this process is to take a good look at your business from the buyer’s perspective.

Prepare and implement a detailed plan of action to get your business ready for sale and due diligence:

• Identify business assets that will form part of the sale;
• Identify all agreements that are required to carry on the business;
• Ensure that all legal documents relating to the business are up to date;
• Make sure your financial records are accurate and up to date;
• Ascertain if your assets are transferable and whether third party consents are necessary.

Being organised is key, pre-empting what a buyer may want to see as part of its due diligence will mean a request is not unexpected and there will be no delays in providing the information sought.

In addition to the financial statements and books and records of your business, a buyer will be entitled to see every document critical to the operation of your business including premise leases, material contracts with suppliers and customers and plant and equipment hire purchase agreement and leases.

Below are some tips for getting ready to sell:

Tip 1: Identify business assets that will form part of the sale

Prepare a detailed list of your business assets, including:

• Unencumbered Plant and Equipment - items of plant, equipment, machinery, furniture, fixtures and fittings that you own outright. These are also known as fixed assets which are used for carrying on the business.
• Stock – identify each item of stock by type
• Intellectual Property – registered and unregistered trade marks, copyright materials, domains, business names, websites
• Contracts – hire purchase agreements, plant leases, premise lease, supply agreements, service agreements, hosting agreements, customer agreements, third party rights to use intellectual property,
• Statutory Licences – many business require a statutory licence to operate, for example if your business is a restaurant that serves alcohol the liquor licence will need to be transferred.

Tip 2: Do you own each asset identified above?

Make sure that you own or have rights to transfer the above assets. As an example:

• Domain Names - A quick online search will verify who the domain registrant is for your domain name. If you as the seller are not the registrant steps should be taken to rectify this before a buyer is found.
• Stock -Check your supply agreements, if you purchase stock on credit, it is likely that the supplier retains title to the stock until such time as it has been paid in full. You cannot sell what you do not own.

Tip 3: Can the assets be transferred?

Is each of the contracts you have identified transferable to the buyer?

• Some contracts require the consent of a third party before a transfer can be effected. Most commonly premises leases require the consent of the landlord before an assignment can take place.
• If a statutory licence is required to operate your business, the licence may be personal to you and not transferable, find this out early.

Tip 4: Contracts

Prepare a copy of all of the contracts you have identified so that these are ready to be given to a buyer upon request.

• If there are contracts to be transferred to the buyer your sale agreement will need to provide sufficient time to obtain the consent of any third parties.
• Always bear in mind that it is in your best interest to clearly identify all of the contracts required to carry on your business. Failing to do so could mean you are left with the burden of a contract which is of no use to you after settlement.

Basically …

Addressing the above matters as soon as you decide to sell will ensure that you are prepared for the process and being prepared usually results in a smooth handover at settlement.

Rebecca Brookes is an experienced Commercial Lawyer and Associate of Ffrench Legal. To discuss any of the contents of this article,

please email Rebecca at rbrookes@ffrenchlegal.com or phone her on +61 7 5591 7555

This article is intended to assist you in ensuring your business achieves maximum potential with or without the assistance of Ffrench Legal. It does not constitute any form of legal advice.