Legal Things To Consider When Planning To Sell Your Startup

There are different reasons why a business owner would feel the need to sell their company and move on – A new venture presents itself, loss of passion for what they started so decided to cash in or even wanting to retire early. 

For some, it comes down to money and the job role of being an entrepreneur, but for others, a business holds a lot of sentiment.

The sale would be much more than just a cash affair especially if it’s a long-standing family-owned firm.

Here are my 5 legal tips when selling your business to ensure that you get the most for your money, achieve the healthiest profit and have a smooth, successful transaction.

Corporate Structure and Ownership

It is advisable to ensure the structure and ownership of the business is very clear-cut. If it relies on you too much individually then you need to arrange the structure to increase stability.

This would make it more buyable, otherwise, the buyer will have no support after you leave.

Having a solid and consistent management structure behind you will ensure that a sale is achieved faster and nearer to your expected sale valuation. Before you go to market, it’s crucial to have a succession strategy prepared.

Another issue to consider is that you will have to choose whether you want to sell the shares or just the assets if the business functions through a limited structure.

Tidy Up Your Company

This relates to any outstanding matters, including contracts, finances, and staffing. Having such issues sorted out beforehand makes your business much more appealing to potential buyers.

It is considered a good practice to perform your own internal due diligence procedure before your prospective buyer finds it in theirs. Finding any issues early means you can resolve them in your own time to maximise the efficiency of your sale.

Putting your business to a buyer with an impending employment tribunal or big VAT bill isn’t going to work in your favour. Also, it is important to formalise any arrangements with contracts, including for customers, employees, and suppliers.

Cash Flow

Your working capital needs to be prioritised when you are getting organised. There are numerous methods to do this, such as decreasing stock levels and managing your creditors.

You could possibly sell off pieces of equipment that don’t get used to reduce your debt and maybe renegotiate your supply contracts to trim off those perks you included.

Scheduling ahead is imperative so that your company has a financial record to tempt a buyer. Together with healthy sales forecasts, which are realistic and supported by evidence, will likely increase potential purchasers confidence.

Get A Realistic Valuation

This will help to give you an accurate reflection when it comes to evaluating offers and also give you an idea of what you can raise.

It almost goes without saying that it’s key to use a professional who has familiarity with dealing with selling businesses, particularly in your sector.

Make sure you use an impartial, independent source to give you a truthful valuation. It may also help you to identify potential weaknesses within your business that you may be able to address prior to selling.

Get The Right Advisers On-Board

An expert solicitor will inform you about the structure of the deal whether it is share sale and/or asset sale, ensuring you comprehend the implications of each. 

Together with a solicitor, it will be important for you to have the expertise of an accountant, surveyor, and a bank.

Gemma Lingard is a Corporate & Commercial Solicitor at Gorvins – specialising in advising new start-ups, terms, and conditions of businesses and company re-structuring amongst other aspects of commercial law.