Don’t let poor corporate housekeeping reduce the value of your business

Fast-growing companies can often find that their corporate housekeeping takes a back seat as the business focuses on keeping up with increasing demands.  This is bad news for shareholder value;  a well kept “corporate house” is a valuable hidden asset.

So, when you’re preparing for a business sale, make sure that your corporate housekeeping is up to scratch or it could reduce deal value during due diligence. 

Poor housekeeping may prevent you from responding quickly or accurately to the detailed questions you will be asked or you may respond in a haphazard way, providing part of the information and then having to follow up later.

This is a real red flag to a buyer; it indicates (at best) that your business is not well organized and at worst that you are trying to hide something. That could raise questions about your internal control systems and the reliability of other information you have provided. 

This situation is totally avoidable and by preparing early you’ll find the whole Due Diligence stage a lot less stressful and reduce the costs associated with an unnecessarily drawn-out process.

The information you’ll need to provide does depend, to an extent, on the industry sector in which you operate. However, there are certain common documents that you will need to provide:

Corporate Governance – you will need to provide copies of board meeting minutes, shareholder agreements etc.

HR – When a buyer looks at your company they’ll want to know who your employees are so make sure all your employees have up to date contracts. Highlight any contracts where there are potential legal issues. In particular, they will want to know about the employment terms of key employees who will be important in the transition to new ownership and potentially to the success of the new business going forward.

Workplace Pensions – this is now always included in Due Diligence so make sure your business is compliant with current regulations and that your paperwork is up to date.

Material Contracts – you will need to supply copies of all material contracts, which typically will include:

  • Supplier contracts
  • Client Contracts
  • Leases – for premises or equipment
  • Distribution and/or agency agreements
  • Guaranties, loans, and credit agreements

Your buyer’s advisers will be looking for any non-standard terms and conditions, such as exclusivity clauses, termination rights, non-assignable contracts or indeed anything that could potentially reduce the value of the deal.

Intellectual Property – if you have any registered Intellectual Property, compile a schedule of all trademarks, service marks, trade names, copyrights and patents that relate to your products, services, operations or company name(s).

Insurance – you’ll need to produce copies of all relevant insurance policies, including Employee Liability, Health Insurance, Key Man insurance, Public Liability insurance.

Financial Documents – as well as your statutory and management accounts you will need to have Corporation Tax and VAT records available for inspection.

This isn’t meant to be an exhaustive list and your lawyer will provide detailed advice and guidance. However, by preparing early you will reduce the risk of poor housekeeping de-railing the transaction or reducing the amount you receive from the sale of your business.

If you’d like to find out more about preparing a business for sale, come along to one of our free Masterclasses. You’ll find our spring schedule at www.evolutioncbs.co.uk/events.

Comments are closed.

© 2019 Evolution Complete Business Sales Ltd.

  Keep me updated
KEEP UPDATED

Dear visitor. Please subscribe if you'd like to receive updates and events on selling or buying a business

* we hate spam and never share your details.
×