Have you thought about selling your business but don’t know where to start or what’s involved? Are you concerned about liability and potential pitfalls? While it is important to have quality advisors by your side as you go through the process, here are a few tips to bear in mind as you contemplate starting on the road to sale.
Sale risks: things to watch out for
Exiting a company doesn’t very often mean the end for the seller; there are lots of ways a seller can still have liability for the business. Keep your eye out for:
1. Due diligence: to avoid misrepresentation claims make sure you give complete and accurate answers to the buyer’s enquiries.
2. Warranties and indemnities: these will be included in the sale contract and create obligations to pay money back to the buyer in certain circumstances. Make sure your solicitor has explained these to you and that you fully understand them. Speak to your accountant, senior managers and other advisors if you need more information to be sure you’ll avoid liability.
3. Price adjustments: some sales include terms to adjust the price after completion once the buyer has full access to all the up to date financial information. Make sure you are comfortable with any circumstances that could reduce the price (or increase it!).
4. Consultancy: if you’re hanging around to help the buyer with a smooth transition, make sure you know what you’re expected to do and when – and how much you’re getting paid for it! This should all be set out in a Consultancy Agreement.
5. Employment: after the sale you might be staying with the business on a more permanent basis as an employee. Make sure you know what your role is and ensure your employment rights are protected to the maximum extent – for example, you should have continuous service from when you started the business, not from the date you sold it.
Selling your business can be a daunting prospect but it needn’t be. Lean on your advisors, ask lots of questions and most important of all, don’t sign anything without making sure you understand all your obligations and potential liabilities. Get comfortable with the risks you’re undertaking and remember, the reward comes in the form of a successful sale where both buyer and seller walk away happy and you hopefully achieve the sale price you were hoping for.