CXT Legal routinely advise on transactions. Here are some points to ponder from a sell side perspective (which are often missed) which we wish to share with you.
Will the buyer assume all of your employee-related liabilities? If so, will they all be deducted from your sale price? What leave will be adjusted? Do your staff agree to be paid out their leave in advance? It’s best to have these matters understood and have positions on them before going into negotiations.
Divestment of non-core assets
Make sure the shopfront looks great and get rid of the rubbish! Look to exclude or sell out any assets unnecessary for the ongoing operation of the business; these non-core assets will focus the conversations and value on the key assets and avoid adversely affecting the sale price.
Your advisory group
Depending on the nature and size of the transaction, it may well be worth getting a transactions advisor (separate from a lawyer) who has experience with similar natured business sales, an appreciation of common buyers’ of such assets and common valuations applied to such businesses. Getting tax advice is essential also; good accounting firms can provide this service directly or complementary with a transaction’s advisor. CXT Legal has extensive experience putting together cohesive teams, particular to your circumstances.
Nasty surprises from third party contracts
Sometimes, there are unforeseen consequences of assigning or novating/paying out contracts as part of a sale. For example, most transactions will require the assets of the business to be unencumbered at settlement. Understand your contracts and commitments early to ensure that: (1) break fees will not be payable by giving sufficient notice to the third parties (if applicable); (2) completing on a preferred date is achievable; and/or (3) necessary accommodations with the buyer can be pre-emptively agreed to mitigate any costs.
What about my business partners?
Generally speaking, the ability to sell a whole business can increase proportionate sale proceeds, rather than selling a majority interest. Ensure as a majority interest holder in the business that you have a robust constituent document structure, with the ability to sell the entire business without needing to go through a complex approval process with minority interest holders.
Pre-completion clean up
Does it make sense to move cash out of the business via a dividend or leave it in to increase the sale price? It’s critical these matters are resolved with the accountant or advisor prior to any term sheet being prepared.
It goes without saying that your advisory group must understand the balance sheet of the business. Negotiations on the mechanisms to agree the completion accounts and any post completion payments are critical in the pre-agreement stage. Lack of understanding of these principles will affect the sale price. An understanding between lawyer and accountant here is critical.
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