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 specializes 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 organized 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 on 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 prospective. Prepare and implement a detailed plan of action to get your business ready for sale and due diligence:
- Identify and make a lists of all the business assets that will form part of the sale;
- Identify all contracts/licenses/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 organized is key, knowing what a buyer may want to see as part of it’s 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 agreements and leases.
Below are some tips for getting ready to sell:
IDENTIFY BUSINESS ASSETS THAT WILL FORM PART OF THE SALE:
- Unencumbered equipment – items of equipment, machinery, furniture, fixtures and fittings that you own outright. These are also known as fixed capital assets which are used for carrying on the business.
- Inventory - Identify each item of inventory by type.
- Intellectual Property- registered and unregistered trade marks, copyright materials, domains, business names, websites.
- Contracts - purchase agreements, equipment leases, premise lease, supply agreements, service agreements, hosting agreements, customer agreements, third party rights to use intellectual property.
- Statutory Licenses - many businesses require a statutory license to operate, for example if your business is a recycling depot that license from Alberta Recycling Management Authority will need to be transferred.
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.
- Inventory: Check your supply agreements. If you purchase inventory on credit, it is likely that the supplier retains title to the inventory until such time as it has been paid for in full. The general rule is that you cannot sell what you do no own.
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 the space you are leasing requires the consent of the landlord before an assignment can take place. If a statutory license is required to operate your business, the license may be personal to you and not transferable, find this out early.
Prepare a copy of all 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.
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.