Selling Your Business & Value Items
For some business owners, the end game is to sell their entire business to an interested buyer, make a profit, and retire. For others, a sale may not be on their radar until there is an offer on the table that is too good to turn down. Whether your goal is to sell or not, there are a variety of items that should be tidied up to maximize the value, increase the purchase offer and enhance the terms so that you will be in a better position when that offer comes. Then you can focus on running the business during the sale process and ensuring an efficient transition. There will inevitably be some unforeseen matter that has to be dealt with, but if you can do a little spring cleaning of these items now, then you know these will not be the ones holding up closing:
Secured Creditor Registrations – When you lease equipment or obtain credit from various institutions or private parties, security is granted to the lender and registered pursuant to the Personal Property Security Act (“PPSA”). When the lease is paid out or if collateral is substituted or cancelled, the PPSA registration should be discharged and/or amended. Having the PPSA registration in place does not, in and of itself, create security in the business’s collateral, but if there are extraneous registrations in place, then someone (me) has to spend time, and your money, sorting out which ones are valid and which are not. It is a good idea to keep regular tabs on what PPSA registrations are in place and which ones should be removed or amended.
Employees on Long Term Disability – After a point, if an employee on long term disability is not able to return to work, they should be terminated. If you leave them on your records as an employee without formally terminating them, then they are a potential liability for the buyer and for you.
Expired Contracts – Part of what a buyer is buying is the contracts with your customers (and your suppliers to some extent) and the goodwill that goes along with those contracts. It is always a good idea to create some certainty in your business with contracts with your customers. If your practice is to have written contracts with your customers for the supply of goods and services, the contracts should be formally renewed on a regular basis. You can do this by having an evergreen clause in the contract, or by renegotiating the agreement prior to the expiration of the term. If the contract has expired, even if you are continuing to do work for that client, the buyer may not attribute as much value to that relationship as they would if there was a written contract in place.
Another thing to mention here is that the buyer (and their lawyers) will request a large amount of information to populate the due diligence data room and complete the schedules to the purchase agreement. Most of the information should be fairly easy to acquire since it would be used each year by your accountants for preparing the financial statements. However if the selling business owner is not prepared, or even aware that the requests are coming, it can mean spending a lot of time collecting information to satisfy the buyer’s queries instead of running the business.
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.