The FMCG businesses we deal with when assisting with the sales process are usually a dairy, superette, or supermarket. Often a lawyer gets involved at the time the purchaser is doing their due diligence on a business. That is when an FMCG business is subject to scrutiny by the lawyer or accountant for a purchaser. Being prepared well before selling makes the sale process smoother, and maximises the sale price.
Our top tips for preparing an FMCG business for sale include:
· The Lease: Make sure your lease has a lengthy term remaining. Businesses like this are locality based and having a number of rights to renew the lease gives the purchaser confidence to pay more in goodwill. It is better to negotiate further rights to renew the lease, rather than ask for them when the landlord’s consent is needed to sell the business;
· Food Act: Make sure your business is registered, and meets all Council requirements;
· Liquor: Do you have a current liquor licence? Is it coming up for renewal?
· Lotto and NZ Post: Do you have a current signed agreement with the Lotteries Commission for both Lotto and Instant Kiwi, and with NZ Post for postal services? What is the term remaining on those licenses/ franchises?
· Plant and Equipment: Is your list of plant and equipment up to date? Often a prior financial year set of accounts are used with out of date information. Remember that the value of plant and equipment can have tax implications;
· Franchise: If you are operating under a franchise, check that your agreement has a long term remaining on it. A franchise name may be an important selling feature, so engage with the franchisor early in the process of selling;
· Registered Charges: When you buy products the sellers of those products will register a charge on the Personal Property Securities Register (PPSR). Get an up to date search of the PPSR and make sure all old charges have been removed. Often this becomes a sticking point at settlement so it is better to deal with the issue early on;
· Key Employee: If you have a key employee needed, and you do not work in the business, think about engaging with them in relation to the sale process as they may be very important for a purchaser;
· Management Accounts: Many small businesses will run expenses through the business which may be more of a personal nature such a lease of a luxury car. Think about moving unnecessary expenses out of the business, as they can diminish business profit;
· Stock: The standard agreement for the sale of a business will estimate the level of stock and have a process to adjust stock payments at settlement. For that reason, keep the level of stock at normal levels; and
· Get Financial Advice: Don’t just talk about the business sale with a business broker. Your accountant will know your business better than you think. Ask your accountant what the business is worth and how to present the business for sale.
It is better to invest time in preparing a business for sale, than negotiating on the day the agreement is going to go unconditional, or even worse, on the day of settlement.
Tony Steindle is a director of Steindle Williams Legal. He works in the areas of commercial and property law including structuring and dispute resolution.