How to Get your Contracts in Order Before you Sell a Business
Our popular eBook SELL – The 30-Minute Guide to Preparing Your Business for Sale highlights the scrutiny your contractual agreements will be subject to when you’re approached by potential acquirers. So, in the second of our blog series on the obstacles that could prevent you from achieving maximum value when you sell a business, we’re taking a closer look at contracts.
Take a moment to consider your contracts with clients, suppliers and employees…
Do they exist? When was the last time you reviewed them? During the due diligence phase of any business sale, your buyer’s lawyers will review every contractual document with a fine-tooth comb, so it’s critical to a successful exit that you evaluate them thoroughly before you decide to sell a business.
If you can’t show potential acquirers up to date contracts – especially in areas upon which your business is heavily reliant – it could sound a warning bell for them that buying your company is a risky endeavour. Buyer fatigue could also set in and exacerbate a case of cold feet if you take too long to locate or correct contractual documents that have been requested.
Recent contracts that are fit for purpose and easy to access will give interested parties confidence that they are buying a company that is as robust behind the scenes as it appears on the surface.
Here are some tips for getting your contacts exit-ready…
Client contracts
Every smart business owner knows it’s foolish to enter into an arrangement with a client without a written contract. In the initial stages of working together, the contract is most likely set out and signed with every ‘t’ crossed and every ‘i’ dotted. But then years pass… and because of ‘a loyal working relationship’ and ‘a strong sense of trust’ – there seems little need to review and update the contract…
The problem when you come to sell a business is that this trust – though meaningful to you – is just thin air to a potential buyer and their lawyers. It doesn’t translate. An out of date contract may even be seen as worthless. How does the acquirer know they can depend on continued business from this client? They may even be worried that the client will jump ship when you exit.
Get an expert review of all your client contracts, especially the longstanding ones that may not have been objectively scrutinised for some time. If a contract is coming to an end, incentivise that client to renew early or increase the contract term. Incentives don’t have to be discounts – they could include a new service or simply more of your time. Remember, happy clients carry immense value in your buyer’s eyes!
Supplier contracts
Your supply chain is the engine that drives your business; a finely tuned configuration of cogs that must work together for ultimate success. All it takes if for one of those cogs to stop working and your key business deliverables will be at risk.
Whilst acquirers will appreciate that interruptions to the supply chain are a fact of life sometimes (due to unforeseen bad weather, natural disasters, or political and economic factors), they will be looking for assurance that there is a clear contingency plan in place if the worst happens and key components, ingredients, relationships or cashflow are impacted.
So, not only do you need to regularly update all your supplier contracts, you need to map out your entire supply chain as you prepare to sell a business. Include the physical location of key customers and suppliers – as well as your suppliers’ suppliers and customers’ customers. Stand back and evaluate any potential weak spots in the overall chain and have alternative suppliers lined up where you can.
Another important element of supply chain risk management is keeping all your suppliers happy! Make sure you can demonstrate to your acquirer that all invoices are paid on time and that you have strong, responsive lines of communication with key supplier contacts.
Employee contracts
Your workforce is a major selling point, yet staff are one of the most fluid elements of a business. In our blog How to identify your S.P.O.F.s (single points of failure) we gave you some tips of keeping hold of valuable employees and all the talent, skills, experience and relationships they bring to your company.
However, despite your best efforts, staff will come and go for a wide variety of reasons and it can be very hard to control that. What you can do is make sure that up to date employment contracts are in place for every member of staff. Are they signed? Do probation and notice periods dovetail with the requirements of the business? Do they take into account the latest legislation and regulations?
In addition, you should create an employee handbook if you don’t have one already. Timekeeping, holiday, health and safety, sickness, and maternity leave policies are just a few of the areas it should cover. What this demonstrates to acquirers is that you have a business where everyone is ‘on the same page’ – staff are clear what’s expected of them and what they can expect in return.
Other contracts that you may need to get professionally evaluated to ensure that they are fit for exit before you sell a business include shareholders’ agreements, memorandum and articles of association, service contracts, and leases on buildings and equipment.
Stay tuned to our blog for more guidance on navigating the pitfalls of selling a business.
Contact Entrepreneurs Hub in confidence to find out how exit-ready your contracts are – and how saleable your business is. We’re a friendly corporate finance company helping business owners prepare for sale, overcome challenges and barriers to exit – and achieve maximum value.
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FAQs – Selling Your Company
How do I sell my business in the UK?
Selling a business in the UK typically involves preparing financial information, obtaining a valuation, identifying suitable buyers and negotiating the terms of a sale. Most owners work with an M&A adviser to manage the process confidentially, approach qualified buyers and maximise the value achieved.
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
What is my business worth?
A business is typically valued by applying a multiple to its sustainable profit, often EBITDA or adjusted net profit. The appropriate multiple depends on factors including growth, recurring revenue, customer concentration, management strength, owner dependency, market conditions and buyer demand.
Determining what your business is worth involves more than applying a simple formula. Use our Business Valuation Calculator to obtain an initial valuation range, or read our simple business valuation guide to understand the factors buyers consider.
How long does it take to sell a business?
Selling a business in the UK typically takes around 12 to 18 months from initial preparation to completion, although some transactions may be quicker or take longer. The timeline depends on business readiness, buyer demand, deal complexity, due diligence and how quickly the legal terms can be agreed.
Preparing accurate financial information and organising key documents in advance can help reduce avoidable delays. Read our complete business sale timeline to understand what happens at each stage.
When is the best time to sell a business?
The best time to sell a business is usually when it is performing strongly, its future growth is clear and you are not under pressure to complete a sale. Buyers are generally more attracted to businesses with rising or stable profits, reliable financial information and credible opportunities for further growth.
Business owners are often in a stronger position when:
- Revenue and profits are growing or consistently strong
- Financial records are accurate and up to date
- Future growth opportunities can be clearly demonstrated
- The business is not overly dependent on the owner
- There is a capable management team in place
- The owner has started preparing well in advance
Market conditions can also affect buyer appetite and valuation. Factors such as sector growth, access to finance and competition between buyers may support stronger deal activity, but preparation and business performance are usually more important than trying to identify a perfect month to sell.
Ultimately, the best time to sell is when both you and the business are ready, and the company can demonstrate sustainable performance and future value to potential buyers.
Use our Exit Readiness Tool to assess how prepared your business is, or read our guide on when to sell your business for further guidance.
Do I need an adviser to sell my business?
You are not legally required to use an adviser to sell your business, but many owners appoint an experienced M&A adviser to help manage the process. An adviser can prepare the business for sale, identify and approach suitable buyers confidentially, coordinate negotiations and support the transaction through due diligence.
The right adviser can also help create competitive tension, protect your time and reduce the risk of avoidable mistakes. Read our guide to choosing the right business sale adviser to understand the different types of support available.
How do I prepare my business for sale?
Preparing a business for sale involves strengthening its financial performance, reducing risk and making sure it can operate successfully without heavy reliance on the owner. Buyers will also expect accurate financial records, clear contracts, organised documentation and evidence of future growth.
Preparation should ideally begin well before approaching the market, giving you time to address weaknesses that could affect value or delay the transaction. Use our Exit Readiness Tool to assess how prepared your business currently is.
How is confidentiality protected during a sale?
Confidentiality is protected through controlled information sharing, anonymised buyer approaches and non-disclosure agreements. Potential buyers usually receive limited information at the start of the process and must sign an NDA before commercially sensitive details are released.
Prospective buyers should be assessed before receiving further information, with documents shared gradually according to their level of interest and credibility. A well-managed process also allows the business owner to retain oversight of who is approached and what information is disclosed.
What documents do I need to sell my business?
The documents needed to sell a business commonly include financial accounts, management information, forecasts, customer and supplier contracts, employment records, tax information and evidence of intellectual property ownership.
Buyers may also request details of property, insurance, legal disputes, regulatory matters and company ownership. Organising this information before due diligence begins can reduce delays and help maintain buyer confidence. Our Business Sale Due Diligence Checklist explains the main information buyers are likely to request.
What’s the quickest way to sell a company?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
What’s the best way to sell a business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…
How can I increase the value of my business before selling?
You may be able to increase the value of your business by improving sustainable profits, developing recurring revenue and reducing reliance on individual customers or the owner. Buyers also value capable management teams, reliable financial reporting, scalable operations and clear opportunities for future growth.
The earlier you identify the factors affecting value, the more time you have to make meaningful improvements. Use our Business Valuation Calculator for an initial indication of value and our Exit Readiness Tool to identify areas that may need attention.