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Posted: 17.02.2020

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Based on over 200 deals and 30 years experience, this countdown of articles crystallises the complex transaction of selling your business into ten golden rules. You will only sell your business once and have one chance to get it right!
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#Four

STAKE YOUR CLAIM EARLY

A truism of any corporate transaction is that your deal is unlikely to improve after the Heads of Terms or Letter of Intent have been signed – the due diligence and legal process is only likely to worsen your terms

It follows that you should stake your claim early to any benefits or aspects of the deal that are important to you, even if just for clarification. Whilst you can clearly withdraw from the transaction at any point up to completion, your negotiating position will weaken once you have agreed a deal in principle and entered exclusivity

Surplus Assets and Cash

If there are any assets that are not used to generate the profit stream then they should be extracted for the benefit of the shareholders, specifically including surplus cash

Property

You should be clear on the treatment of any property assets used in the business – if owned by the company, do you want to keep the property personally and rent back to the company or sell it outright?

Post-Completion Employment

It is very important to be clear on your future involvement in the business post-sale

you should stake your claim early to any benefits or aspects of the deal that are important to you

Future Tax Reliefs

Typically, corporation tax liabilities will be deducted from the headline price – similarly, you should stake your claim to the benefit of any tax reliefs not yet received and common examples include corporation tax relief on the issue of share options and R&D tax credits, which if not claimed early could be lost

Directors Loans

The treatment of any outstanding directors loans should be clarified early – as an example, any amounts due from you to the company should be treated as surplus cash in the business

Deferred Income

Deferred income is arising more frequently as an issue and the treatment requires early clarification – the buyer will start from the position that deferred income should be deducted in full from surplus cash balances but there are alternative negotiating positions

Tax Planning

Early tax advice is very important to determine any advantageous structuring that needs early incorporation into the deal

In summary…

Using experienced advisors is key as they will help you negotiate the best possible position

No two transactions and two groups of shareholders are the same but the key is understanding your objectives from the sale and making sure that these are incorporated into the deal terms from the outset

Thinking of selling in the next five years or simply want an informal chat over a coffee then the team at Provantage Corporate Finance would love to hear from you

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