Neil Jones
is the head of the Corporate and Commercial team at Ansons Solicitors. He advises on a wide range of business contracts and transactions, including mergers and acquisitions; company and business sales; company reorganisations.
This uncertainty has led to panic, with some business owners looking to sell in a bid to recoup some of the lost earnings.
Although it may seem like there are no other options, snap decisions should be avoided where possible, as there are buyers looking to take advantage of the situation and secure businesses cheaply.
Where deals have already been agreed, these buyers may attempt to renegotiate certain terms to the detriment of the seller, so if you are adamant that selling is the right thing to do, then it’s important that you exercise caution throughout the process.
After all, the buyer is investing in the long-term viability and potential in the business, which must be reflected in the terms of the deal. Therefore, sellers should take steps to protect themselves, like asking for payments upfront, to avoid any issues later down the line.
Simple steps to success
If you’re sure you want to sell the business, then it’s important to follow a set of clearly defined steps, including securing the positions of employees, minimising personal tax liabilities and deciding what expert advice is needed.
When taking on expert help, it’s crucial that the professionals you choose have the experience needed to deliver a positive outcome within your sector.
From there, it’s about securing the best deal possible. This can involve tidying up loose ends, selling under-used property or equipment, positioning major purchases or implementing strict stock management and credit control measures to maximise working capital.
Currently, sellers are more likely to be approached directly by buyers keen to offer a valuation that maximises their chances of securing the business as cheaply as possible. The seller must evaluate the status of the buyer as carefully as they would normally to understand if they can fund the purchase.
Although the current climate may encourage sellers to fast-track due diligence, this could play into the hands of many buyers, who want you to rush through the deal.
During the COVID-19 lockdown and the likely economic uncertainty to follow, it’s only natural buyers may place increased emphasis when performing due diligence, on aspects such as insurance, supply chain risks, business continuity and employee health and safety policies.
From the seller’s perspective, it’s important to be open and transparent, as this will help you build up trust with potential buyers and protect against future claims.
With any deferred pricing mechanisms or earn-outs, the seller needs to ensure they are fully covered with reference to COVID-19’s impact on their business.
Selling might be the only option for some business owners, but people must exercise caution. COVID-19 has created market conditions where speculators feel they can grab bargains, but wise sellers can still structure any agreement to ensure the business they have worked hard to build, is not undervalued.