Top tips for buying or selling a business

Buying or selling a business can be a very stressful and confusing time and the role of your legal advisors is to guide you through the process, negotiate all the terms that are necessary to protect your interests and provide clear explanations of any areas that may appear confusing.

By Jennifer Bell, associate solicitor, corporate and restructuring, Forbes Solicitors

The process itself is a complex legal area where many traps and pitfalls await unprepared victims.  Effective, tailored legal advice is essential early on in any transaction for the following reasons:

To ensure certainty. You must be clear on exactly what it is that you are buying or selling.  Once this has been established you must ensure that this is correctly reflected in any written agreement. To protect your investment, or the proceeds of your sale against unexpected liabilities.

Make sure your timing is right

If you’re selling, it is imperative that the timing of completion and the structure of the transaction is right for you.

You do not want to find, after you have completed the sale, that you could have saved a substantial amount of tax, if you had only waited six months or if you had structured the deal slightly differently. Ensure you take tax advice at the very beginning.  Changing the structure of a deal at the 11th hour can be time consuming and may weaken your bargaining position.

Get your house in order

When selling, make sure that your house’ is in order so as to protect yourself from claims by a buyer after the sale has gone through.

During the course of the transaction a buyer will carry out a large amount of due diligence in order to find out everything there is to know about your business.  If any issues or problems arise during the course of the due diligence process this can cause a delay in the transaction, but worst of all it could result in weakening your bargaining position or cause a reduction in the purchase price.

It is therefore vital that you carry out a thorough review of your business in order to identify any problems early on so that they can be resolved before a potential buyer identifies them.

Remember: If you fail to prepare you prepare to fail!!

Get protected

During the course of the negotiations a seller will be exposing all of his confidential and sensitive commercial information, such as pricing, customer lists, and trade secrets, to a buyer who is quite often a competitor of the business and who is capable of using the information for his own advantage.

It is important that a buyer recognises this and agrees not to use or disclose the confidential information.  Therefore, before disclosing any details to a buyer, the first and perhaps the most important step is to ensure that a buyer signs a confidentiality agreement (or non-disclosure agreement), as it is extremely difficult to protect information at a later stage.

Remember: Information cannot be unlearnt!

Take advice

Ideally you should take advice from the outset—even before you begin negotiations. Before you even agree the basics of the deal take advice and let your legal advisors explain the implications of all the possible routes to you.  If you don’t and you end up having to move the goalposts later on, then you risk reducing your bargaining power and in some cases reducing the purchase price of your business.