Essential tips to prepare your business for sale: A seller's guide

Selling a business can be complex, and often, business owners do not know how to prepare. Early preparation can be key to enabling a business sale to run smoothly. In particular, it can greatly assist the due diligence process. 

Valuation

One of the first things prospective sellers should do is approach a specialist business valuer. A good idea of the company's (‘Target’) value will assist in early negotiations regarding the sale price with the buyer. It may influence key aspects of the deal, such as whether deferred consideration is necessary from the buyer’s perspective. A business valuer will assist in ensuring that the price is realistic given the market conditions, and they will also help you to understand the risks associated with different valuations. 

Tax

It is essential that sellers are informed on the tax position of the Target, as well as their own personal tax position. Certain tax reliefs may be available on the sale, such as Business Asset Disposal Relief (if the seller is an individual) or Substantial Shareholding Exemption (if the seller is a company). A tax specialist will explain how the tax will work on completion and whether any reliefs may be available to you. 

Corporate Documents

In Tees’s experience, it is common for sellers not to have or not know where Target’s corporate documents are. It will be of significant benefit to the efficiency of the sale if these are obtained before the transaction gets started; the buyer’s solicitor will almost certainly request these documents as part of the due diligence process, and not having the papers can create a bad impression as to how the Target has been operated. Key documents that the buyer will likely request are:

• The Target’s statutory registers including: 

1. Register of Members: this is essential as it shows who the legal owners of the shares are (until the shareholders are placed on the register of members, they are not legal owners of the shares and will not have legal title to sell them to the buyer). 
2. Register of Persons with Significant Control
3. Register of Directors and their addresses
4. Register of Secretaries and their addresses
5. Register of Allotments
6. Registers of Transfers

• The Target’s minute books and key shareholder resolutions
• Certificate of Incorporation
• Articles of Association
• Memorandum of Association
• Records of any changes to the Target’s name
• Evidence that any charges or debentures have been released
• The corporate structure of the Target, including the shareholdings, and whether there are any holding companies or subsidiaries. 
• Copies of any existing Shareholders’ Agreement

Companies should have records of at least some of the above, and collating these early in the sale process will help the buyer’s due diligence get off to a good start. In addition, sellers should review Companies House and ensure all filings are current. If they are not, the seller is technically in breach of its statutory obligations, and the buyer will ask for this to be rectified before completion. 

Employment Issues

Another aspect that sellers can prepare early is an anonymised list of all employees in the business, their date of birth, job roles, salary, benefits (including details of any pension scheme), and whether there are or have been any employee disputes or grievances. The buyer will ideally want copies of all employment contracts or a template employment contract if these are the same for all employees. 

It would also be useful for the buyer to know whether any employees do not plan to continue working for the Target, and any implications this will have on running the Target post-completion.  

Commercial Contracts

We often find sellers do not have records of their key contracts with suppliers and customers. Often, in due diligence, buyers ask for copies of agreements with Target’s top 10 suppliers and top 10 customers. Preferably, the Target will have written agreements with these companies to outline how the relationships work practically and help to minimise the risk of disputes. 

A review of the contracts that the Target has in place would be a useful exercise for a corporate seller. If there is no written contract, we would advise getting one in place. All contracts should be collated to provide these to the buyer quickly. 

Litigation

The buyer will inevitably need to know about any litigation that is taking place and what stage it is at. They will request copies of any agreements reached or offers made, as well as copies of all correspondence with the other party or their advisor. Sellers must give an honest account of any ongoing disputes. 

The buyer will want to consider its potential liability surrounding any dispute. Sellers may be able to consider settlement with the disputing party. Buyers may want to put indemnities in place to cover any related claims post- completion. 

Property

Sellers should review the Target’s property portfolio and collate all documentation relating to any properties owned or leased, as well as any licences, permits or other rights relating to the properties. Often sellers do not have these documents to hand, which can slow down the due diligence process, as it can take time to retrieve property documents from the Land Registry, Councils or other authorities. 

Intellectual Property (IP)

Similarly, IP is another asset that may be included in the sale, and the buyer will want to know about all trademarks, patents, and design rights. It is good practice for a seller to organise this information into a schedule, including all registration numbers, renewal dates and the IP owner. If the owner is another company within Target’s group, the ownership of the IP may need to move to Target. It is advisable that the seller take tax advice at this event. 

Summary

Early preparation for a sale can be key to its efficiency. Sellers should have early conversations about tax and valuations to assist with early negotiations with potential buyers. Sellers should also collate as much information and documentation about the Target as possible before the due diligence process, as otherwise, there can be a lot of back-and-forth with the buyer submitting additional requests for information, which can delay completion. 

If you are a potential seller considering a sale of your business, don't hesitate to get in touch with our Corporate and Commercial team to discuss how you can prepare and how we may assist you with your transaction.