Selling your e-commerce business is a big step with a lengthy process. Liaising with the buyer can be challenging. Most importantly, you must navigate the due diligence appropriately to enable the buyer to make an informed decision. During this process, the buyer will want to review your company’s information to assess its risks and benefits. This article will outline how your business can prepare for due diligence in hopes of a successful business sale.
Signing a Confidentiality Agreement
Firstly, before allowing due diligence, you must ask the buyer to sign a non-disclosure agreement (NDA). An NDA will prevent the buyer from taking advantage of or leaking your sensitive business information.
What a Buyer May Review
Before beginning due diligence preparation, it is essential to understand what the buyer may like to review. Generally, a buyer will review:
- financial records;
- property itself;
- property lease;
- commercial contracts with suppliers and customers;
- equipment;
- employment contracts;
- intellectual property ownership;
- customer base; and
- profit margin reports.
Many business owners provide all information in a data room for easy access.
Continue reading this article below the formPreparing for Due Diligence
Organising Documents
The first step is to organise yourself and all relevant documents. You can build a team and obtain assistance from your accountant and lawyer. It is best to centralise your documents and make them available in one place. This makes the due diligence process easier for the buyer and conveys that your business is organised.
At this point, you can upload your company information onto a virtual data room or a drive on your company’s server. First, however, you must ensure that your centralised data location is secure through authorisation and encryption.
Review Contracts
Your e-commerce business may have critical contracts with suppliers, manufacturers and customers. Before due diligence, you must ensure these contracts are robust and will last the buyer appropriately. For example, if you realise your manufacturing contract will end soon, you should work towards renewing it. Alternatively, if you cannot renew your contracts, you can help the buyer enter a new contract by introducing them to your key partners.
Check Intellectual-Property (IP) Ownership
Your IP is your company’s most valuable asset. Hence, either you or your company must own the IP. Firstly, you must ensure your brand name and logo have a trade mark registration. If not, you can apply for a trade mark registration on IPONZ, although this process is time-consuming and best done earlier.
Moreover, any novel inventions or creations requiring extra legal protection need a patent or design right. You can apply for either of these on IPONZ. However, you must note that while a patent protects the invention itself, a design right will only protect the appearance of the invention.
Lastly, you should confirm whether your company owns the domain name. If not, you can either purchase it from the hosting party or ensure that you can transfer the rights to use the domain name to the buyer.
Review Your Property Lease
If your e-commerce business runs from a physical office, you must check if you can transfer your lease to the buyer. Usually, your lease agreement will state this. If not, you need to discuss your intentions with the landlord and obtain their consent to transfer the lease.
Commonly, your landlord will request some documents from the buyer, such as:
- CV;
- credit score;
- financial documents; and
- references.
The landlord will assess the above documents to ensure the buyer can pay rent and outgoings.
You can transfer the lease with a deed of assignment that includes:
- the buyer’s, your landlord’s and your consent;
- who you are transferring the lease to;
- what you are transferring; and
- the lease terms.
If, in the rare case, your landlord does not allow a lease transfer, you may need to terminate the lease and help the buyer enter into a new lease.
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Key Takeaways
When preparing your e-commerce business for due diligence, there are several factors to consider. First, you must ensure the buyer signs an NDA before allowing due diligence. Moreover, your documents should be in a central location, and your contracts should have favourable terms. Further, confirm that you have ownership rights over your IP and that you can transfer your lease.
If you need help preparing for due diligence, you can contact our experienced business sale lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page.
Frequently Asked Questions
Due diligence occurs when a buyer assesses your company’s information to ensure it is a beneficial investment. They will review a range of documents, from contracts to employee agreements.
You can ensure ownership rights over your IP through trade mark registration, patents or design rights.
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