Consideration when selling a business
The selling of a business entails a myriad of legal and commercial issues. Many are not obvious. While a seller may know and understand a business intimately, when it comes to selling a business, he or she may not achieve the outcome desired due to poor preparation and record keeping. To ensure a successful outcome, it is imperative that a seller retains professional legal and financial advice in order to accurately evaluate all aspects of the sale. The average legal costs of a business sale are minimal compared to a dispute between a purchaser and vendor.
Some of the issues to consider before selling are:
- Determine the primary goal of the sale of the business. For example, you may want to raise capital to start or buy another business, you may not have a succession plan in place, you lack capital to fund the continued operations of the business or you may want to exit whilst the business is still successful and profitable.
- Identify the market in which the business is competing, the approximate size of that market, the businesses main competitors and the market share that the business commands. This will all assist the purchaser in deciding whether to purchase the business and your co-operation and organisation throughout the selling process can have some influence on how long it takes to sell your business and for how much it is sold.
- Understand precisely what you are selling. For example, are you selling tangible assets such as plant equipment, machinery or land or are you selling intangible assets such as the goodwill of the business or intellectual property?
- Identify confidentiality issues and determine what information you will provide to a potential purchaser. A confidentiality agreement should be signed prior to negotiations with a potential purchaser.
- Determine if any restrictions in the constitution or existing shareholders agreement limit the scope of the sale.
- Identify employee issues and your potential liabilities under employee agreements. For example, will you have severance or termination payment obligations for employees not retained by the purchaser?
- Identify intellectual property issues. You must ensure that you have secured the intellectual property rights of the business name, any trademarks or other intellectual property if you are selling these assets.
- Determine the tax implications of the sale, such as capital gains tax, value of shares and roll over relief.
- Ensure that all contractual obligations can be assigned to the purchaser, especially any lease covenants or mortgagor covenants.
- Determine if the business has any liabilities. If so, what impact will these liabilities have on the sale?
All of these issues must be given serious consideration in order to achieve your desired outcome.
If you require any further information or have questions in relation to the sale of your business, please contact Tal Williams on (02) 9458 7241.
