26th Jul 2022

10 Steps to Stop the Cost of Business Sales Creeping Up

Selling a business can happen for many reasons – good, bad, or neither. Often, sellers are unhappy with the costs associated with the sale. If you are selling, what can you do to avoid cost creep? – you want to put a cap on those costs, or you find “extras” appearing.

Here are some things you can do:

  1. Make sure your house is in order! Additional costs often arise because more work needs to be done than could have been planned for – because in the process of information gathering – due diligence – things come to light which need sorting out. Have all contracts been signed properly? Have all share transfers been properly recorded in the company’s register, and at Companies House? The effort in rectifying these later will be far greater than having them in place from the outset.
  2. Be equipped to be fully engaged in the sale process – have all the documents you need to hand, understand the numbers, be available and responsive when your advisers – lawyers, accountants, corporate finance professionals – need your input.
  3. Make sure the details of the deal are right from the beginning. This might involve you getting legal and accountancy advice when you are negotiating the deal, so that agreed mechanisms are clear and achievable, and tax consequences are properly reflected. It can be disruptive, expensive, and put a deal in jeopardy to try to change it midway.
  4. Tax! Make sure you have an expert tax adviser, involved in the structure of the business, shareholdings and the deal. Don’t be in a position of having to try to retrofit tax advice – that will increase cost, mean renegotiation is needed, and delay or even endanger the deal. Delay means cost and you can lose the deal if momentum is lost. Poor tax planning is money thrown away. Late tax planning is costly, and less likely to be successful.
  5. Contracts – have you had everything signed that should have been signed – you don’t want to be chasing around getting signatures when you’re up against it – when it’s urgent for you, but not that urgent for your customers. Have you made concessions in contract to important or early customers which could come back to bite you – such as change of control provisions (customer can bale out if you sell), easy termination rights (which mean revenue isn’t nailed-down or recognised)? Can you easily access and provide signed copies of all your contracts?
  6. Disputes – have you got any? No buyer or investor is going to want to inherit a dispute. If you have anything bubbling under – address it and resolve it. Don’t hide it. Untangling these issues can be costly; doing so when you have a pressing timescale, more so, and damaging to your leverage.
  7. Employees and contractors – have they all signed contracts? Have you got them? Are you relying on any unsigned documents? And again – identify any disputes and try to get them resolved. Addressing issues late means more cost.
  8. Intellectual Property – do you own what you’re using? This might be a more nuanced issue than you think; it is not just a question of what employees have created, but also what contractors may have created – which could be theirs, not yours – or founders or others brought into the business. It could be open-source components with restricted proprietorship rights. Having a close eye on IP, and resolving any issues early, will be really valuable and save problems (and money) later.
  9. Premises – are you occupying any? Have you got a lease? Has it been signed? Can you get out of it if you need to? Have you kept up with your repair obligations? Are the buyers likely to want to keep the premises on? This could become a transaction within a transaction – but ideally done in advance, not left to push through when it’s your priority but not another party’s. 
  10. Finally – good advice costs. Bad advice costs more. One party well advised, and the other not advised, or inexpertly advised, is likely to be more expensive for everyone in the short run, and because it increases the risk for everyone, even more expensive in the longer run. It’s not just a question of having expert advice for yourself – legal, tax, accounting, corporate finance – but also making sure all parties are well advised.

It's all a question of being well prepared and planning as early as possible; the more you can do that, the less likely there are to be issues arising which delay a deal, jeopardise it and – or – increase the costs beyond those forecast. As with other professionals, we as lawyers can only give fixed or anticipated costs against what we know, and on an assumption that things (such as those listed) are in order. But if they are not, there’ll be more work and greater cost. But now you know how to minimise that risk; so do it.

Paul Berwin is a Commercial Lawyer and acts as Managing Director. If you require any legal guidance on anything mentioned above, call Paul on 0330 016 8614.

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