The bigger picture – selling your business.

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Ok, so it’s great that you’ve got your own business and that you’re doing so well. BUT, the question is do you want to be doing this forever? I don’t think so. If your business isn’t getting passed on to another generation then you’re probably looking to, one day, sell it and make a hefty profit! This post is a heads up about the things you need to be doing NOW, in order to build a product (yes, your business is your product) that sells quickly and at the best price possible. Here are my top tips!

Keep it clean – Your business must not have skeletons in its closet. I’ve said this before. Either you eradicate those skeletons or you confess to them, preferably the former. If you have unpaid bills, taxes or ongoing litigation, your business will not sell or it may sell BUT at a DISCOUNTED price. This is because instead of purchasing a nice shiny product, the buyer is purchasing a whole lot of risk. Risk is financial uncertainty and in business we despise financial uncertainty. We are constantly mitigating against it. So, clean up your business and keep it clean. Carry out your due diligence REGULARLY. Do not neglect complaints from clients or scary regulatory letters. The buyer of your business will carry out its own due diligence and it will be thorough. Would you buy a car without a test drive or seeing under the bonnet? Nope, I didn’t think so.

Show them the money – If you want to sell your business you have to be super transparent with your numbers. Start planning now to make sure that your business has a financial record to attract a good buyer. Maintain a healthy working capital, renegotiate supply contracts and make sure that you are getting the best deals for your business. Also, get on top of your debt. Pay off as many of your loans as possible. Think about what is actually costing your business money. If your business requires a lot of machinery, are you using all of that machinery? Can you sell some of it? Don’t forget your forecasts – get them ready and back them up with evidence.

Create and implement a business manual – It is amazing how many of my clients do not have systems and procedures for the simplest of things to do with the day to day operation of their business. If you sell products worldwide, you should not be selling those products on ad hoc procedures. You should have a clear process that the buyer of your business can step into tomorrow and operate. You should have systems in place for every aspect of your business. You should have formalised documents. Get your lawyer to draft standard form employee contracts, terms and conditions, disclaimers, policies etc. Also, is the structure and ownership of the company clear? Make the ownership as clear and as transparent as possible.

Show them your A team – Behind every great business is a strong and passionate management team. Your management team is a big part of your business’ valuation. It is therefore crucial that you consider if your business can retain good employees – this may require considered incentives. The buyer of your business will want all your key people to be a part of the sale. It will also want the assurance that your business is not a DIY job; show off your professional support. Your lawyer, your accountant, your consultant all make an impression. Those relationships matter because they instil confidence in the buyer that everything to do with your business has been done properly. Also seek advice from your A team. What do they think? Get your lawyer to review your business structure and advise you as to whether you need to change it in order for it to be an attractive purchase. Your lawyer will take you through the whole process and organise all of the legal paperwork to ensure that there are no unnecessary complications before and after the sale. You really need everyone on board advising. I have worked on an international acquisition where the whole deal was restructured because of tax. It was cheaper to do it another way! Three days before closing we had to change everything!

You may be far off from selling your business at this point in time, but if you want a big pay out someday, you should start doing all of the above now!

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Legal fees can be flexible.

 

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How many of you pay your legal fees as part of a pay as you go plan? It’s expensive right?The reality is that a good lawyer with some sort of experience, should be able to give you a fee quote give or take a few pounds. They should be able to offer you some sort of fixed fee arrangement . HOWEVER there are circumstances where legal fees can easily spiral out of control and such circumstances tend to arise in litigation. Often lawyers can get away with saying “how long is a piece of string” when it comes to estimating their legal fees in litigation and this is UNFAIR because in litigation there is NO guarantee that you will win. You could easily pay £50k in legal fees and not see a dime from the other side or even have to pay the costs of the other side too! SCARY!

The good news is that there is a way to get lawyers to buy into the risk of litigation and CARE about that piece of string. In the UK there are Conditional Fee Agreements (CFAs) and Damage Base Agreements (DBAs) and they are pretty good at encouraging realistic assessments of litigation, from your lawyer. Here’s a brief breakdown.

CFAs

A CFA is an agreement whereby a lawyer and a client can agree to share the risk of the litigation by coming to a financial arrangement whereby part or sometimes all of the solicitors’ fees will only be payable by the client in the event of success. So for example you might agree that you only pay your legal fees if you win (your lawyer will scream) but in return for the risk that you may lose, your lawyer might say ok but you will have to pay me an additional amount of X% of my fees if you win (you will scream BUT it’s not a bad offer as this only arises if you win). Or you may say to your lawyer I will pay you half of your fees and if I win, I’ll pay the other half. Your lawyer may say ok but, again, if you win, you pay the other half and a success fee of x% of my total fees. Can you see the bargaining power shift and settle in these examples. Each side has a stake in the litigation. You care because it’s your law suit BUT now your lawyer cares because he or she may not get paid!

DBAs

A DBA is an agreement between a lawyer and a client under which the client agrees to pay the lawyer a percentage of its damages if it wins its law suit. So for example you might agree with your lawyer that if you win your claim for breach of contract which is worth £300,000, your lawyer will get half of whatever you recover from the other side. This is  a huge risk for your lawyer as they won’t be getting paid unless you win BUT it forces your lawyer to consider if the claim is actually worth bringing. Your lawyer will be forced to seriously consider whether they will realistically get paid and therefore whether you have a decent case. You can make DBAs more complex too. For example you may say if you win £300,000 from the other side, your lawyer gets 50%, if you win £200,000 from the other side your lawyer gets 40% and if you win £100,000 your lawyer gets 30%.

Also do not forget FIXED FEE arrangements. If you are instructing your lawyer to do some standard conveyancing work or some corporate work, get a fixed fee! They do that kind of work all the time so the variables never really grant a “pay as you go” regime. If you are not in the UK I’m sure that these payment plans exist in some form or other in your country, so look it up!

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3 ways to get the most out of your lawyer

1. Educate your lawyer about your business – We may know the law (that’s our job) but we do not necessarily know YOUR business. Educate us. Bring us in to the office, let us play around with the product or let us taste the food! Basically, don’t let your lawyer work on assumptions. If you want a tailored, personal service from your lawyer, you have to help them to understand YOU, your EMPLOYEES and your BUSINESS.


2. Maintain good housekeeping –
Lawyers will always need to see the paperwork so do yourself a favour and get the paperwork ready. Get all your business contracts together in one place. If possible categorise them by product, by year or by client, whichever, so long as it is ORGANISED! Get every receipt and financial document in a finance folder (electronic is fine) and put all key correspondence (letter, email, text) in a tidy place. Good document management enables your lawyer to hit the ground running from the minute you instruct them. The SOONER you start the better as there is nothing worse than trawling through years of paper/emails. Good document management is also a life saver when you want to attract investors or apply for a loan. This is the famous paper trail!

3. Give realistic deadlines – Most good lawyers will always want to do a Rolls-Royce job. If you need your lawyer to help you review a contract or draft an agreement or settle a dispute, give them as much NOTICE as possible and ASK your lawyer how long they will need. This puts the onus on the lawyer to manage their time and to assess the situation efficiently. If you give your lawyer a day to build Rome you will most likely receive a job riddled with errors or even worse, a great piece of work BUT a disgruntled lawyer who starts to put you at the bottom of the pile and er…dodge your calls.

Do these three things and your lawyer will respect you and work hard for you!

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