It is a sad fact of life that the Covid-19 outbreak has left many businesses in a parlous state, with some owners considering selling up in a desperate attempt to make up for a loss of earnings. In this situation, it is very much a case of seller beware. Snap decisions should be avoided, as potential buyers are actively looking to take advantage of the situation and secure businesses cheaply, advises Neil Jones, head of the corporate and commercial team at Ansons Solicitors.
Jones, pictured right, advises 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 up-front, 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-19-19 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-19-19 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.
About the author: 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; and company reorganisations.
About the firm: Ansons is a leading firm of solicitors with offices in Cannock, Lichfield, Halesowen and Sutton Coldfield, providing a complete range of legal services to businesses and individuals. Services range from advising on commercial property and corporate matters to family law and wills, probate and tax planning.