Making your business an attractive proposition for an investor or potential buyer can be a time consuming task. Apart from the usual business day to day of ensuring you are making sales and keeping your clients happy while increasing profitability; there is the added preparation of documentation to allow the key business info to be viewed from the outside and understood by a potential suitor. The process of viewing and interrogating this documentation is generally classed as ‘due diligence’.
According to sellingbusiness.ca, “despite all the uncertainty regarding the due diligence process; some principles that if applied can assist the process and increase the chances of reaching a satisfactory sale. For example it’s advisable that the sellers prepare a large portion of the documentation needed for due diligence before putting the business up for sale, especially financial and accounting information and legal documentation”. This principle is applied to either investing-in or buying a company”.
Colin Munro, Director at Mi City, www.mi.uk.com comments on the need to impress an investor, “Small businesses need to protect their intangible assets in order to build value and if investment is to be attracted at any future date then clear legal definitions will be a requirement of the investor. It is much better to agree terms with a supplier prior to commissioning any work, clarifying any areas of ambiguity. This will help to prevent future disagreements and potentially costly negotiations”.
So, having the right contracts is important as it shows investors or buyers you can protect your asset and build value within the business. David Reilly, Director at Create Ts and Cs, “in my experience investors or potential buyers will feel a certain reassurance that you have gone to the trouble of putting in place the correct contracts with suppliers and customers to assist in managing risk and help contract in a manner that assists the process of getting paid on time, protecting your IP and generally providing a professional framework to protect both parties while doing business. Also a contract can demonstrate residual value where contract duration is signed up to; for example, a signed contract ensures a certain amount of revenue and value for the contract period. i.e. a 12 contract should yield 12 months revenue, which of course is attractive to a potential investor or buyer”.
It’s not unreasonable for a potential investor or buyer to be interested in a company that has invested in its own business processes and formally manages their client relationships.
Bill Christie, FCIBS is a Chartered Banker and Managing Director at CER, www.cerbusinessfinance.co.uk, who assists businesses identify the appropriate funding for their company commented “I cannot stress strongly enough the essential requirement for a business, no matter how small; start-up or indeed established to have an “approved” set of Ts & Cs; specifically designed for your business. Yes, you can obtain Ts & Cs from the Internet but they may well not be designed to provide the right protection that you and your business require. When discussing a funding/business proposal with a prospective client, I consider that Ts & Cs are just as important as Business Insurance”.