Here we’ll outline what is expected of you and the other party to get the deal over the line and allow you to start trading.
Detailed Due Diligence
Once the Heads of Terms have been signed it is down to you to ensure that a second, more thorough, due diligence is performed on the company to ensure that everything is correct and right for you to complete the purchase. Firstly speak to customers of the business to ascertain their thoughts on how the company is run. You’ll be able to build up a picture of how long customers have been loyal to the company, who their main point of contact has been so far, what they like and don’t like about the goods and/or service and whether they use competitors as well. Here you can put together questions that discover what level of service current customers will expect in future.
As well as customers, now is the right time to delve deeper into suppliers and see how happy they are with the way things are run. Does the business pay them within an agreed timeframe; does it feel from the outside that the business runs smoothly and does the business compare favourably with competitors within the industry.
Trends and Projections
Take a detailed look at the historical financial data of the company, see at what points sales have grown and dipped, the types of overheads and profit margins that have been posted and try to identify areas that could be improved upon. Financial projections already in place should be checked against historical trends to see if they match up and if you think they are not in tune with the projections you and your advisors have worked out, put together a new business projection that will be ready to be issued upon completion of sale.
It is beneficial to put together both a financial and employee audit. This way you can have an accurate indicator as to stock levels, bad debt levels as well as to ascertain how regularly audits have been completed in the past. From an employee point of view, an audit highlights key individuals, compares pay to the industry average as well as giving a voice to current employees and how they feel about the current ownership and a prospective change of hands.
Legal Due Diligence
Legal due diligence includes a confirmation of ownership of all key assets linked to the company, including any property, equipment and intellectual property. Take a look at any lawsuits that have occurred in the past or are pending and look in detail at all contractual agreements and how the change in ownership may affect them.
Negotiating Final Terms
Your final negotiating stance is only as strong as your final due diligence. If you have been as thorough as you can be, you will have a strong hand to deal at this stage. It pays to be reasonable yet firm with any requests you make to the vendor at this stage and even if there are disagreements about certain aspects of the sale you should keep the lines of communication open at all times, as by this stage of proceedings the vendor is unlikely to want to lose the sale.
There are a few options on payments, including deferred payments, which can benefit both sides. You can pay using case that has been generated by the business, negotiate an earn-out payment based on future performance, or acquisition of key contracts and see a benefit to your capital gains tax, which can be spread over more than one year as a result.
Change of Ownership
An announcement of the change of ownership should be quick and clear in the most positive way. Agreement with the vendor on the wording of the announcement is best practice in order to engender positivity about the change within staff members, suppliers and customers. Write to major customers and suppliers once you are in place to make them feel secure with you as the new owner.
Implement a Plan Quickly
A thorough due diligence phase will have allowed you to identify the key areas that you feel could do with changing. The best new business owners don’t come in and change everything over night, instead they earn the trust of their staff and only make positive tweaks and adjustments where necessary at first. Your overall plan must be clear and concise, with the knowledge of all staff members to secure their confidence in you and the company. Cashflow is king, especially at a time of ownership change in a company.