Selling your business? There are many things you can do to optimize value and sell for the best price possible.

Timing is important. If possible, avoid selling into a depressed market or after a period of lacklustre earnings. Ideally, you will have experienced at least two years of positive upward trending earnings immediately before selling. 

If your business is likely to be bought by an absentee owner (e.g., financial investor), make sure you have employees who can run the business effectively without you. This may mean training a good second-in-command and getting rid of poor performers. You should also ensure that reasonable confidentiality and non-competition agreements are in place with key employees so that prospective purchasers aren’t concerned about losing critical staff to competitors. 

Now is a good time to attend to any needed repairs so that everything is neat and in good running order. Your business and corporate records should also be organized and made current. Any outstanding legal claims should be resolved and all outstanding taxes should be paid. And make sure you have adequate insurance coverage in place.

Do you need anyone’s consent to sell? Most leases have a clause requiring the landlord to approve any assignment or change in control. Virtually all franchise agreements give the franchisor a similar veto. It’s therefore prudent to keep your relationship with these parties on a good footing to minimize any problems in getting any required consents. 

You may be able to significantly enhance the value of your business by taking steps to protect your intellectual property. For example, if your business has a catchy name, maybe it should be trade-marked. If you employ proprietary technology, perhaps it should be patented. If you have a website, take the necessary steps to secure your Internet domain name.  

Do you have systems in place for operating your business? Many small business owners have this information stored only in their brains. Written manuals can be helpful when you’re trying to sell your business.

Before proceeding too far in your discussions with any prospective buyer, make sure they sign a confidentiality agreement prepared by your lawyer, which bars them from raiding your key employees or inappropriately using sensitive information provided by you. Even with a signed confidentiality agreement, you should never disclose customer lists, proprietary technology or other highly confidential information until all “subject” clauses have been removed and you’ve received a substantial deposit so the purchaser is unlikely to back out of the transaction. Otherwise, you may be arming a potential competitor with the tools to seriously damage your business.

Your discussions with prospective purchasers should always be completely truthful.  Misrepresentations about your business can come back to haunt you later. It’s also a good idea to have your financial statements professionally prepared and to seek the advice of an accountant on how to structure the sale so you pay as little tax as possible.  

Your lawyer should prepare or review all legal documents relating to a sale, such as confidentiality agreements, offers or letters of intent, and purchase agreements. He or she can also help in negotiating the terms of sale so that your interests are properly protected. This is especially critical where vendor take-back financing is involved, since you’ll want to secure repayment of the unpaid portion of the purchase price.

 

This column has been written with the assistance of ANDREW LAU. The column provides information only and must not be relied on for legal advice. Please contact ANDREW LAU at (604) 681-3833 for legal advice concerning your particular case.

 

Lawyer Janice Mucalov, author of this article, writes about legal affairs for several publications. “You and the Law” is a registered trade-mark. © Janice Mucalov.

 

 

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