There are many factors that may drive a business owner to either sell their business or scale down on their operations, for the most part, the decision is usually financially motivated. In this article, we seek to examine and discuss a few important tips that a business owner should consider when selling their business.
Selling Your Business;
When selling your business, it is imperative to make sure that all your “i’s are dotted, and all your t’s have been crossed” in order to ensure a seamless and successful transaction.
There is an exhaustive list of important considerations when selling your business, however, we have identified the following as some of the important factors to take note of and consider:
- the business structure and ownership;
- the valuation of your business;
- the tax implications;
- protection of your company information;
- employee transition; and
- engaging experts.
Business Structure And Ownership:
As a business owner, it is important to consider all the formalities that have to be completed prior to the sale of your business. This involves taking into consideration the structure of the business, whether the company is incorporated as a sole proprietorship, a limited liability or a closed company. This will assist in determining the consents that may be required to facilitate the sale, for example, if the business is a company incorporated as a limited liability company, the shareholder’s consent to the sale by way of a written and signed resolution would be required.
Business Valuation:
In order to successfully sell your business, you and your proposed buyer have to agree on one very important aspect of the transaction, the purchase price. As the seller, it is your responsibility to motivate the correlation between the value of your business and the set purchase price. Due to this, it is advised that you value your business prior to setting the purchase price and not the other way around, as the potential buyers will look at the value of what they are acquiring and compare it to their actual acquisition costs. Further, the valuation will greatly assist you in supporting your selected and set price.
When valuing your business, it is important to disassociate any emotions and only consider what would be appealing to a potential buyer. It would also be wise to appoint an expert to assist with the business valuation.
Tax Implications
There are likely to be tax implications that will arise from the sale of your business. In order to protect yourself from any unanticipated or unbudgeted expenditure, it is advised that you consult a tax expert and discuss the proposed transaction prior to entering into any discussions with any potential buyers. As the old saying goes, “it is better to be safe than sorry”, therefore, we deem it better to incur the costs of engaging a tax expert rather than finding yourself on the wrong side of the tax man.
Protection Of Company Information
As the seller, you have to find the perfect balance between being transparent and engaging and protecting your company information. It is common cause that the purchaser will most likely conduct a due diligence in an effort to ensure that they are making a sound financial decision, and in order to achieve this, the purchaser will request you to release certain vital information relating to the company. Prior to releasing the requested information, it would be wise for you to enter into either a confidentiality agreement or a non-disclosure agreement. These agreements will govern how the disclosed information may be utilized by the parties.
Transition Of Your Employees
As it is often said, human capital is an invaluable asset, consequently, your employees are one of your companies most vital assets. It is important to ensure that your employees are adequately informed and consulted throughout the sale and transition process as they are part and parcel of the business. A smooth transition of the employees will surely aid with the business continuity under the new ownership.
In terms of Section 28 of the Employment Act [Cap 47:01], employees can be transferred as a going concern if the business is transferred from one person to another. If you as the seller wish to terminate the employees’ contracts prior to the sale, you are at liberty to do so, provided that all the substantive and procedural requirements under the Employment Act [Cap 47:01] are adhered to.
Engaging The Relevant Experts
As mentioned above, it is advised to engage the relevant experts when structuring the sale of your business. Over and above engaging a professional valuer and a tax expert, we advise that you engage a legal expert. A legal expert will ensure that the transaction is structured in the most suitable way to meet your objectives, further, they will ensure that all the relevant documentation is drafted and entered into by the parties. This will not only protect your interests, but it will ensure that there is no stone that is left unturned, and that the sale is properly executed and finalized. Bookbinder Business Law is readily available to assist and provide the abovementioned services to any and all potential business sellers.
In the sequel to this article, we will be discussing the main tips to consider when acquiring a business. We trust that these articles will offer some insight when making a decision to either acquire or dispose of your business.
For further information contact One L. Seikano one@bookbinderlaw.co.bw