This article was originally published on the 5th of December 2018.
Folk -law would have us believe that London Bridge was bought by the US in error because they were hoodwinked into it. That they believed they were actually buying Tower Bridge. Nothing could be further from the truth. The sale in 1968 was far from accidental. The buyer, RP McCulloch, had done his research and knew exactly what he was buying, but so had the vendors.
Ivan Luckin of the City of London Common Council put together a 40 page glossy brochure selling a slice of history, not just bricks and mortar. RP McCulloch knew exactly what he was buying, every single brick.
Realistically, nobody would commit to a million pound spend without knowing exactly what they were buying, and this is the purpose of writing.
In this article we provide a practical checklist for selling a business, the content of which will be needed by buyers, and to protect you post sale.
There are always going to be some very specific items necessary for each business sale. By providing this universal checklist, you will be better prepared than most.
We talk about preparing a business for sale in great detail in this article which looks more at the planning and strategy of selling. Here we turn to the more practical tips. The records you should prepare and the documents you will need.
Just think about selling your house. Imagine the documents you need to hand over to a new owner. Legal contracts, energy suppliers, keys and burglar alarm codes, council tax details. There’s a lot to remember.
For the sale of a business, the list is huge.
So here’s the checklist for a limited company. If you’re a sole trader or partnership there will be differences, but the principles of what you need to prepare are the same. We’ve loosely grouped them below.
Looking for a handy checklist that will walk you through all that’s needed when preparing your business for sale? We’ve created one with all you need – and you can download it here.
These are the major items of equipment owned by the company and necessary to complete the work of the business. For a service business it might amount to a computer system. For an engineering business it could be machinery running into tens of thousands in value.
- full asset list with make, model and serial numbers of all major items
- operating manuals for equipment
- list of any company vehicles with service and MOT dates and latest mileage
- clear ownership of all major assets by way of original sales documentation or registration
- inventory of stock. This will naturally change but be sure the level of detail in your periodic stock take is what a buyer wants to see
We’re categorising this as the work you undertake for customers. The tasks and products for which you are paid and how you create them.
- business plan
- current list of major suppliers
- current list of major customers
- business procedures manual
- marketing plan
- current product or service price list
- trade secrets – although these would be held back until after the completion of a sale (e.g. secret formulas or recipes) having them in a usable document can be prepared ahead of time
These are the items that make your business a legal entity, and the position within it.
- registered company documents (or partnership agreement)
- list of directors and shareholders
- trademarks, patents or copyright documentation
- legal contracts the company has entered into such the licensing to use a particular brand, franchise agreements, exclusivity agreements
- minutes of AGMs or extraordinary meetings
- licences required to legally operate the business (e.g hazardous waste handling)
- Insurance documents and recent claims. Include your basic business insurance, staff liability cover, professional indemnity, key-worker policies etc.
You need to hand over a comprehensive folio of your current staff and those of the recent past who may still have right to claim against the business.
- employment policy or HR manual
- employment contracts
- sickness and holiday entitlements
- bonus schemes
- disciplinary or dispute records
- roles and responsibilities
- organisation chart
- health and safety inspection records
All things in the accounts department. Naturally, financial records, but also consider the reports that can demonstrate your business is worth buying, like cash flow forecasts.
- at least 3 years of full trading accounts
- HP or lending agreement
- tax records
- aged debtors and creditors
- owners renumeration and dividend history
- asset schedule including depreciation term, original purchase value and current value
- details of all bank accounts and signatories on each
The building your business operates from. Your entitlement to do so and the legal agreement to do so.
- current lease, sublease and details of any annual service charge
- if freehold, details of the land registry records and who holds them (e.g. solicitor)
- business rates and any rebates applicable
- latest inspection reports for asbestos, legionella, fire risk
- photographs of the building, work areas and equipment are also useful to have
An increasingly bigger part of business and difficult to keep track of if you aren’t disciplined. You need to provide access to systems when a member of staff joins you, and revoke it when they leave. Old employees still with valid passwords and access to your business systems are a threat to security as well as a devaluer when it comes to sale.
- details of all software used in the business, licences and access codes
- website credentials including hosting
- domain ownership and renewal dates
- social media accounts and passwords
Why do I need a checklist like this?
If you are investing in a successful business, you are not just buying a set of company accounts. You buy the employees who deliver the service, who create the products. You are buying the assets necessary to get the job done. You are buying the legal rights to the trading name, company registrations, occupation of the premises. All the things discussed above.
During the sale of a business, you make claims for how your business operates. But it is little more than your word at that point.
Ultimately, everything will be boiled down into a contract of sale and purchase, drawn up by solicitors.
Part of that contract will contain warranties and indemnities to protect both vendor and buyer. At a basic level it protects a buyer from any improper activity that occurred before they took ownership. For the vendor, it protects them from a counter claim that something fundamental to the business operation was hidden from the buyer.
Many of the items in this checklist will become part of the disclosure documents which accompany the contract of sale. The indisputable evidence of what information was disclosed. That a buyer was aware.
Why not just get this information together when I sell?
Selling a business can be stressful. There are a lot of meetings, negotiations and other demands on time. We talk about them from a buyers perspective here.
You could just gather this information together when necessary, but it also makes sense to have this information regularly updated. Keeping this company information in an easily accessible format will help on a number of levels;
- You should be keeping employee lists, asset lists, customer and supplier contracts regularly updated anyway. Why do the work twice? If you use something to drive your business forward, keep it in a format that will support your business sale too and save on duplication.
- For company registrations, trade marks, minutes of meetings etc it is more a case of keeping a great filing system. Be that paper or electronic, make sure the information can be retrieved easily when needed.
- For software items, regular reviews on access and authorisation are necessary for security. It will also demonstrate your seriousness as a business to protecting yourself.
More than anything, preparing your documents, filing structure, ability to retrieve information whilst you have all the time in the world is far better than rushing things during a sale.