In this podcast Solicitor, Lachlan Page discusses the steps to take in preparing your business for sale.
Anne: “Welcome, today I’m talking to Lachlan Page from Mullane and Lindsay, Newcastle and Tea Gardens. Hi Lachlan, thank you for taking my call today.”
Lachlan: “Hi Annie, great to be here.”
Anne: “Our topic of discussion today is “Selling your Business”. If you’re thinking about selling your business, what is some of the things you should do to prepare?”
Lachlan: “Selling your business, can be an exciting time and also extremely rewarding. In order to prepare your business for sale, you need to take the appropriate steps at an early stage. This will not only make your business more attractive to a buyer and achieve the best sale price possible but its also likely to reduce the time it takes to sell your business and the costs associated with negotiating the sale. One of the most important steps is gathering the appropriate advisors at an early stage. Some of these advisors include people like business brokers, accountants, financial planners and of course lawyers. You want to put together the best possible team to assist you with the sale process.”
Anne: “So, why is selling your business different from selling your house and what are some of the key differences our listeners should be aware of?”
Lachlan: “Yes, thanks Annie. This is one of the most common misconceptions we encounter. They often think it’s a very similar process or the same process to selling your house, selling your business is very different. Whilst your property follows a very standard process from start to finish, a business sale very significantly, depend on a range of different things, including things like the type of business you’re selling for example if you’re selling a takeaway shop or if you’re selling a large international or national business. The structure of your business, as well, whether or not you are running it as a sole trader or as a company or a trust structure and also the different qualifications or licences and government regulations that might apply to your business. It’s the reason that I’m passionate about this law, it allows me to get to know my client’s businesses in an intimate way and also obtain inside into their businesses and I’m continually learning my clients and the businesses they’re selling. Every business is different therefore every business sale is different.”
Anne: “Can you describe what a typical business transaction would look like and how it would progress?”
Lachlan: “As I mentioned before, there is no real typical transaction, every transaction is different but in saying this, the legal process follows a relatively similar process from start to finish. If there’s a business broker involved, there will be an offer that’s been made, and a purchaser will usually make that offer through a business broker. Once the offers accepted by the seller then a contract will usually be prepared, and this is where the lawyer becomes involved in the transaction. A lawyer prepares the contract and will send that to the purchaser’s lawyer who will then review it. Usually there’s a bit of negotiation faze that occurs there in relation to the terms of that contract but once everybody’s happy, everybody signs the agreement it is then exchanged. Its at that exchange that we then have the binding agreement, and this is where things are usually a bit more complex on the business side of things in that there’s usually a range of different conditions that then need to be satisfied before you actually get to completion. Those conditions we usually refer to as conditions precedent and relate to things like dealing with leases, obtaining landlords consent, if there’s a franchisor or franchise component dealing with those matters and also dealing with the employees and their entitlement and other logistical on the ground functional matters that need to be dealt with the transition across to the new owner. When all the conditions are satisfied then the parties are ready to complete, and completion is essentially the day the owner is handed over the new business and the owner of the business is paid the money for the business. It’s very much like a settlement date when you’re buying someone’s house.
Anne: “So, what would be some of the common pitfalls people encounter when trying to sell the business?”
Lachlan: “There’s a range of common mistakes or assumptions made when you’re selling a business which can impact on the process. Best way to avoid these types of mistakes is to be prepared and get good advice early. If the business has a premises, you need to review your lease, firstly and foremost, you need to make sure you have a lease, you’d be surprised the amount of times a business has been put on the market and doesn’t actually have a lease in relation to the business premises. Once you’ve established that there is a lease, you need to make sure that there’s sufficient time left on the lease, that any potential purchaser might be able to continue to run the business. This might actually require you to renegotiate with your landlord before you put the business on the market. In addition to that, if your business has any main customers or large suppliers that add value to the business. You want to make sure those relationships are appropriately documented in writing as that will drastically increase the value that you can achieve for your business. Another key area that people often overlook is making sure that your intellectual property is appropriately registered and protected and these are things like your business name, logo, any trade marks you might have. If that intellectual property is appropriately registered and protected that drastically increases the value that you can achieve for your business. And finally, one of the most common misconceptions is the amount of time it takes to sell a business, selling a business often involves a range of third parties to be consulted and approvals to be obtained and those third parties take time to obtain the consent. So, it’s really really important that at the beginning of a sale process, you set up a realistic and manageable timeframe to make sure that everybody is on the same page about when it can actually complete.”
Anne: “So, do you need a lawyer to sell your business, or can you sell your business yourself?”
Lachlan: “Well, Annie, you don’t need to have a lawyer, but I would be suggest that you definitely obtain a lawyer. Unless you’ve sold multiple businesses before and they’re across all the different legal requirements in selling a business, its better to engage a professional who manages these transactions on a day-to-day basis. The lawyer will not only document the sale but will be able to provide you with advice in relation to a range of questions and issues that might arise during the transaction. Another benefit of a lawyer is that if a dispute arises between a buyer and a seller, the lawyer can be there to assist in resolving that dispute in the most commercial ways. One of the key areas of selling a business is making sure that your lawyer and your advisors are experienced in the particular industry that you’re operating in. There is no way that any particular lawyer can be across every particular industry that is in the market and therefore its important that the lawyer that you engage has experience in that particular area, say for example, you’re selling a pharmacy business, it’s a very highly regulated and regimented area of law and you need to have someone who is experienced in pharmaceutical law and the consents required representing you to make sure you achieve the sale price and make sure the transaction is transferred smoothly. So, in answer to your question, I definitely recommend that you engage a lawyer to sell your business.”
Anne: “Thank you for your time and helpful information today, Lachlan, most informative and thanks also to Mullane and Lindsay, Newcastle and Tea Gardens.”
Lachlan: “Thank you, Annie.”