Profitability of a business remains a top priority throughout the company’s the life cycle, whether it operates on a large or small scale. With profitability as the central focus, during the initial stages of a company’s life cycle, the focus typically revolves around building a brand, increasing sales and adopting a correct strategy. However, there may come a time or situation where the business reaches its maximum potential or can no longer expand. In such instances, seeking external investment or even selling the venture could be a viable option to enhance profitability.
Nevertheless, the latter option constitutes a significant decision, especially when considering the effort invested in building the business. Moreover, for such a sale decision to be a correct decision, prior the sale business owners must thoroughly ‘clean-up’ the company without only focusing on the business’s finances.
In this blog, we will elucidate some essential points that should be incorporated into the ‘clean-up’ process that will render the sale possibly the most profitable one for the seller.
Key Agreements
Regardless of the business’s nature, whether it is related to food and beverages, beauty products, or the provision of specific services, the seller should make sure that the focus remains on the product (including the service offered), sales, team strength, growth potential and similar areas. Accordingly, it becomes crucial for the seller to maintain a strong grasp of the business’s clients and/or suppliers. This ensures that certain contracts that are important for the business are secured even after the sale. Such strong grasp provides certainty and confidence to the buyer which will consequently lead to a better sale price.
To safeguard these pivotal contracts, one must ascertain the duration of these agreements, along with their termination clauses in the event of a sale of a controlling interest in your business. As well as, understanding how price clauses are drafted, meaning whether prices are fixed or is there a mechanism to alter prices over time. While scrutinizing these clauses bearing in mind the preferences of potential buyers could also contribute to a smoother sale process with fair greater value.
Employees
During the process of selling a business, it is advisable to thoroughly examine the business’s employment contracts, benefits and employee policies together with staff retention. It is crucial to know whether the sale will trigger any ramifications for existing positions. As such, maintaining a comprehensive understanding of all employee contracts plays a pivotal role in orchestrating the best sale for the business.
The Business’s Identity
Trademarks, design rights, patents and all other IP rights essentially define a business’s identity. By registering your trademarks and securing relevant IP rights, you shield your business from potential infringement by others who might attempt to use your product, distinctive design feature, in broader terms your brand. Accordingly, having a clear understanding of the IP rights you possess and offering this information to a potential buyer empowers buyers to give a fair valuation to the business.
A business with brands that are either registered or that can be registered as trademarks due to their inherent distinctiveness will always make that business more appealing for acquisition. Therefore, if your IP rights are not secured, securing them prior the sale will help you secure a powerful position in negotiations and consequently in the sale.
Any Disputes or Problems?
No one would want to invest or acquire a business riddled with contractual disputes, compliance issues or even missing documentation or licenses. A potential buyer seeks transparency and assurance that the firm’s contractual disputes and any problems are handled appropriately. Hence, it is important that prior selling the firm’s all disputes regardless of their size and complexity are actively managed.
Business’s Assets
Gaining a thorough comprehension of the business’s assets and presenting this comprehensive view to a potential at the outset of negotiations will aid the buyer to evaluate accurately the business at hand and subsequently aid the seller to achieving a fair value during the sale process. Conducting portfolio assessments provide insights into factors such as value, expiry dates of leases and restrictions on use if any. Moreover, it is vital to ensure that all licenses and environmental permits are up to date and available to a buyer to review.
Document Management
When conducting a sale of business, the seller will share key business information either in physical or virtual format. The core idea here is the exchange of important business data. At this point, having a well-organised document management system with all essential documents easily accessible and regularly updatable is critical. Such system will ensure that the sale process goes smoother with minimum costs.
Similar to the challenges of starting a business, negotiating its sale or even part of it, is a demanding and complex process. For the seller, who was previously the creator of the business, prioritising profitability remains pivotal even during the sale. Therefore, in order to secure the best sale, the business’s finances are not the only factor that should be taken into account. In this blog post, Barnes Law listed certain essential clean-up factors that are crucial in a business sale that contribute to making the sale a highly advantageous decision for the seller.
In order to obtain bespoke advice businesses can turn to Barnes Law.
Barnes Law specialises in assisting with exit strategies and offers valuable legal insights to guide businesses through complex processes including sales.
