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How to sell your business without losing business: Regular housekeeping (Part 1)

09 September 2019

#Corporate & Commercial Law

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How to sell your business without losing business: Regular housekeeping (Part 1)

Selling a business can be a full-time job. A sale is a difficult balancing act for a business owner – on one hand you need to commit the time, effort and resources towards achieving the best possible sale price, but at the same time you need to ensure the performance of your business does not suffer as a result of your split focus and competing priorities. A drop in performance could impact the sale price and if the deal ultimately falls through, the business can be worse off for the trouble.

In this four-part series, we will examine the entire business sale cycle and outline some simple yet effective steps you can take well in advance of, and all the way through, a sale process to help you sell your business without losing business. 

We kick off this series with five tips that will ensure your business is ready for sale, even before you think about selling it:

Collate key documents and correspondence

When a prospective buyer begins conducting due diligence on a business, they will want to review copies of all material contracts with customers and suppliers, property leases and employment contracts (amongst others). Original contracts might be easy enough to find, but any extensions, price adjustments and other variations to key terms may have taken place via separate documents or emails (or even orally) over a number of years. All material contracts and any documents or correspondence that vary or clarify the terms of those contracts should always be maintained together. This will not only help save time during a sale but also help demonstrate a business with excellent recordkeeping practices.

Protect the value in your business

This goes without saying, but to be truly prepared for a sale a business needs to understand where its value lies and take the necessary steps to protect that value. If the value is in your branding and intellectual property, register it. If the value is in customer contracts, ensure your contract terms are robust and your customers are locked in long-term. If certain employees are crucial to the future success of the business, make sure they are sufficiently incentivised to stay and that their contracts provide adequate protection for the business in case they were to leave. Any perceived weaknesses in value-protection could significantly impact the sale price.

Say no to change-of-control clauses

Many terms of trade with customers or suppliers will include a requirement that a business obtains the consent of the other party to a proposed sale or change in control of the business. If one of your customers or suppliers is trying to impose this requirement on you, try to negotiate out of it as the more consents you need from third parties, the longer and more challenging a sale process can be. At a minimum you could try to negotiate this down to a notification-only rather than a formal-consent requirement.

Monitor Personal Property Securities Register (PPSR) registrations

Most businesses will have granted a security interest over their assets to a third party, such as in favour of a consignment stock supplier, finance provider or maintenance service provider. Some security interests are ‘ordinary-course’ and can stay with the business when it is sold, but often there will be many that need to be released or discharged before the sale can be complete. To avoid the stress of trying to arrange releases from multiple third parties in the days leading up to completion (when there will certainly be other important matters to attend to), conduct a search of the PPSR every three to six months to monitor what has been recorded against the business and take action to remove any incorrect or redundant registrations.

Variations from standard terms

Another useful tip is to keep a record of any changes to standard terms that your business has agreed to. For example, if you use the same form of contract with all your employees but have agreed to special arrangements with some (e.g. extra leave, a relaxed restraint of trade, a bonus incentive, etc.) then keep a spreadsheet that summarises the changes that apply to those employees. The same applies to changes you have agreed with individual customers to your standard trading terms, such as extra time to pay, reduced late payment fee, special delivery arrangements, and etc. This helps reduce the time it will take a buyer to complete its due diligence on your contracts and speed up the sale process. 

It’s essential to lay the foundations for a smooth and stress-free sale in advance. Stay tuned for our next part in the series next week. 

Author: William Kontaxis

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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