Tag: Trading

Exit Strategy – Selling your Business

When starting a business always look at what your end game is and keep this in mind. You may decide that you want to build a legacy, therefore, you will be passing it on to your heirs. But you should still look at setting up the business with a mind to selling it, as you may find that you could make more money by selling and so you can give more money to your heirs, or you may find that your possible heirs may not want the business as they have no interest in it or they are not capable of running it.

Your business must be able to run without you, if your business cannot run without you then it will die with you, therefore before you even think about selling or passing on your business make sure that you have processes, systems, manuals and procedures in place. This must be your number one priority above anything else, if you do not know how to set these up get help, as it is worth paying someone to put these in place for you, remember this adds value to your business so don’t cut corners or skimp on the price for the consultancy, so think of it as a short-term loss for a long-term gain.

When selling your business, it is critical that you understand the processes involved. After all, unlike other business decisions, this will only be made once!

So here are a few questions that might help you in the process.

Why are you selling? Are you selling because the business has reached its full potential, or do you want to get out because you have had enough? It’s important to have a reason for the sale as you will get asked this question from all potential purchasers.

Is your property on a lease? If a buyer is looking at your business, your buyer will want to see a long-term lease in place. Negotiate with your landlord an extension to your lease and make sure that you have a clause in there which allows you to transfer the lease to the new buyer.

When did you last value your assets? This is especially important when it comes to property as prices are constantly changing and you might get a very pleasant surprise.

Do you want to sell just the goodwill and still own the property? Often when selling a business, it is possible to keep the property and lease it to the new buyer. If you do not need the full proceeds it is often wise not to sell the property as long term it will be an appreciating asset. Make sure though that you get a full repair and renewal lease put in place with the buyer.

Are you the one hundred percent owner? If not, what do the other shareholders think about you leaving? One of the easiest ways to get out is to sell your stake to the other shareholders.

Do you want to protect some workers in your business once the sale has gone through? You might have members of the family or close friends who work in the business and they might need some security after you have left. One way to do this is to provide them with decent employment contracts prior to the sale.

Is the timing, right? The best time to sell the business is just after you have had a good year of trading. Even economists disagree about what the future may bring so try not to predict how the trading environment will change but get out when profits are high.

Prime the business for sale. Just as a house will achieve more with a lick of paint and the garden in top condition so a business will need as many loose ends tied up as possible so that it is easier for a new buyer to walk in. Get rid of all the dead stock and dispose of all old and useless machinery and equipment.

Tidy the place up. Make it look as attractive as possible and make sure all the light switches and bulbs work. Make sure the place is as bright as possible by using higher power bulbs than normal.

Get professional help. If you have a small business all you need are the services of a good accountant and solicitor. If the business is more complicated a decent business broker might be required to get the maximum price for your business.

The easier you make it for the buyer to move in and start running the business from day one the higher the price you will achieve for the sale.

I’m in business; why do I need to know about the law and regulations?

Introduction

I know that this can be a boring subject and most of you would rather watch paint dry than read through a set of regulations, but bear with me as I am just going to pick out a few and try to show you that in reality, you need to understand which laws and regulations apply to your business, as the consequences of not doing so can be very costly.

Consumer Law

‘Caveat emptor (buyer beware)’ still reads true even though this is slowly being eroded away with the introduction of consumer law that is put in place to protect the consumer. It has long been argued that ignorance of the law is not an excuse; however, consumer law is not clear either for the consumer or for the providers of goods or services. According to the government’s Department for Business Innovation and Skills, there are twelve separate pieces of legislation that covers the key consumer rights within the UK. For those that need to enforce the consumer rights, there are sixty pieces of legislation that cover the investigatory powers. This makes things confusing for both the consumer and providers to understand their rights and responsibilities.

“To prosper, companies need satisfied customers, but the expectations of customers are growing. Well-informed consumers, able to make discerning choices, put pressure on businesses to provide better goods and services, tailored to the needs of their customers and sold at competitive prices… The revolution in shopping via the internet and digital highways will enable consumers to compare prices and product quality not only against those available in the other Member States of the European Union but elsewhere in the world including the US. I have no doubt that this will change forever the ways we judge whether and if we are getting a good deal… We are also working on proposals to ensure that consumer law is consistently enforced and that traders who cheat consumers are quickly stopped” Said the former Minister for Employment Relations and Consumer Affairs Dr Howells in his speech to the Yorkshire Fiscal Group (Woodroffe and Lowe’s Consumer Law and Practice (2013))

However this speech does not reflect the reality of internet shopping as the majority of people sign up for goods and services without reading the terms and conditions, this was proved by an investment company called Skandia Investment Solutions who conducted a survey to prove that it was easy for consumers to sign up for products and services on the internet without really knowing what their consumer rights are. 43% said that they did not read the terms and conditions as they were boring and difficult to understand. 58% said that they would rather read an instruction manual or utility bill and 12% said they would rather read the telephone book. Because consumers did not read the terms and conditions the survey revealed that 21% of consumers had suffered because of it and that one in twenty consumers had actually lost money. Whilst consumers may try to contest contracts using the Unfair Contracts Terms Acts they will find that it will not apply because they had simply failed to read the terms and conditions.

At present, anyone can set up a business and start trading with the minimum amount or no knowledge of consumer laws and regulations. This is especially true for online internet businesses such as services that you may offer e.g. building a website, sourcing, etc. or selling a few items on a website such as eBay or Amazon and then dedicated more time to it and expanded the business until it has become a source of income. People are often not aware that the Distance Selling Regulation applies to them. This and other laws and regulations do not even come into mind when the time comes to developing a business plan as it is not high up on the agenda or has not been considered. Furthermore, consumer law is not generally discussed when the business plan is presented to a body such as a bank or business advisor. Knowledge of consumer law may be raised to a higher status once they

  1. a) begin trading,
  2. b) caught out by an unhappy consumer who has purchased a product or service and has quoted a law that they believe gives them protection,
  3. c) or if they have fallen foul of the law when they have been visited by one of the enforcement agencies.

To try and simplify the law the UK Government has developed a Proposed Consumer Bill of Rights The government believes that the bill will help both consumers and businesses will understand their rights through a simplified framework of legislation. The idea is to empower the consumer and promote growth in the markets by reducing regulatory burdens for businesses. It is also hoped that it will increase competition as it is believed that open competition is good for the consumer because it will result in lower prices, increased quality and more choice of products or services.

Health & Safety

For those of you that are property investors, you need to be aware of a regulation that affects you directly, but I bet that very few of you know of it. The regulation is called CDM 2015, Construction Design and Management which is a regulation that was brought out in 2015, hence CDM 2015. The regulation is about health and safety and how it is applied in the construction industry. You may be thinking that this does not apply to as you are not in construction, however, this regulation applies to any building except your own personal private resident, so this does affect you and your business as you will be carrying out refurbishments. Here is a taster of the regulations, however, I strongly suggest that you download it and become familiar with it.

Regulation 4 Client duties in relation to managing projects

(1) A client must make suitable arrangements for managing a project, including the allocation of sufficient time and other resources.

(2) Arrangements are suitable if they ensure that—

(a) the construction work can be carried out, so far as is reasonably practicable, without risks to the health or safety of any person affected by the project; and

(b) the facilities required by Schedule 2 are provided in respect of any person carrying out construction work.

(3) A client must ensure that these arrangements are maintained and reviewed throughout the project.

(4) A client must provide pre-construction information as soon as is practicable to every designer and contractor appointed, or being considered for appointment, to the project.

(5) A client must ensure that—

(a) before the construction phase begins, a construction phase plan is drawn up by the contractor if there is only one contractor, or by the principal contractor; and

(b) the principal designer prepares a health and safety file for the project, which—

(i) complies with the requirements of regulation 12(5);

(ii) is revised from time to time as appropriate to incorporate any relevant new information; and

(iii) is kept available for inspection by any person who may need it to comply with the relevant legal requirements.

(6) A client must take reasonable steps to ensure that—

(a) the principal designer complies with any other principal designer duties in regulations 11 and 12; and

(b) the principal contractor complies with any other principal contractor duties in regulations 12 to 14;

(7) If a client disposes of the client’s interest in the structure, the client complies with the duty in paragraph (5)(b)(iii) by providing the health and safety file to the person who acquires the client’s interest in the structure and ensuring that that person is aware of the nature and purpose of the file.

(8) Where there is more than one client in relation to a project—

(a) one or more of the clients may agree in writing to be treated for the purposes of these Regulations as the only client or clients; and

(b) except for the duties specified in subparagraph (c) only the client or clients agreed in paragraph (a) are subject to the duties owed by a client under these Regulations;

(c) the duties in the following provisions are owed by all clients—

(i) regulation 8(4); and

(ii) paragraph (4) and regulation 8(6) to the extent that those duties relate to information in the possession of the client.

Conclusion

Laws and regulations are the least understood area of your business as most people do not look at them and this can be a big mistake as it could cost you dearly. Be informed as this is your best defence. Some of you may be thinking that you have a solicitor that can keep you abreast of things, but they can’t know everything about your business, e.g. how many solicitors are aware that CDM 2015 affects you? Start to get discussions on laws and regulations going in your online groups and networks as this will help with research and understanding of what can affect you.

 

Further Reading

https://www.gov.uk/online-and-distance-selling-for-businesses/overview

http://www.legislation.gov.uk/ukpga/2015/15/pdfs/ukpga_20150015_en.pdf

http://www.hse.gov.uk/pubns/books/l153.htm