Taking your food or drink to the next level is a major step, whether it is exporting into overseas markets or selling the business. Here, legal experts look at some of the issues to consider
Creating a business can be a flurry of financial plans, processes and establishing a legal framework. More often than not there are advisers to call on at every turn.
Then, at some point in a food and drink entrepreneur’s life will come the time to consider the next step.
It might be entering a new market, investing in an innovation or property or it might be selling the business or retirement.
Seeking advice should still be a key part of the planning process, says David Morgan, a partner at law firm Burness Paull. He points to international expansion as an example of where good groundwork pays off.
“Succeeding in today’s ever-changing global marketplace requires in-depth understanding of local cultures, economies, laws, governments, trends and business climates in order to anticipate and react quickly to changes in the market.
“In an increasingly globalised economy, business challenges are rarely confined to a single jurisdiction.
“This is especially true for food and drink producers exporting to other countries or companies with international operations.”
Morgan says that if a legal issue arises businesses need certainty that their affairs will be handled seamlessly in each jurisdiction, not through a disparate range of intermediaries offering varying levels of service and different billing regimes.
“To perform globally, you need an edge locally,” he says, adding that Burness Paull is a member of the global legal network, Lex Mundi.
“All 160 Lex Mundi firms are territory experts and leaders in their jurisdictions which cover 100 countries.
“Each has broad knowledge and understanding of their respective markets – how those markets were developed, their peculiarities, their drivers and their rules and regulations.
“Membership of Lex Mundi gives us an extremely important edge to service our clients globally.
“In my field of employment law, global mobility issues are key to the success of our clients – especially those with overseas growth ambitions in the food and drink sector.
“If we have a client who has a pressing matter in a number of jurisdictions, we are able to draw on genuine legal expertise.”
Think about how the next generation will grow
A significant number of Scotland’s food and drink organisations are family businesses, writes Fiona Clarke.
It is a common theme for family businesses and entrepreneurs to plough their energies into growing the business, developing the brand and creating opportunities.
These are the exciting, energising parts of running a business – and vitally important.
As a result there is often little time given to planning how the business may pass to the next generation, or how an exit from the business would play out.
These difficult issues are, understandably, put to one side – but are worth investing time and effort to get right.
Statistics often paint a negative picture – with the majority of family businesses failing to make it to the third generation, and a limited number having a business succession plan in place.
Where the participants in the business address the issue early, make a plan and follow it through, it not only smooths the process at the time of the business handover, but helps manage ongoing expectations, allows for long-term strategies, the implementation of gradual (less painful) changes and directs participants’ energies and focus towards a common goal.
The issues which most frequently arise are those of fairness, family dynamics, control and, inevitably, taxation.
An added dynamic for those business owners domiciled in Scotland are legal rights – rights which entitle a spouse and children to a certain proportion of their spouse/parent’s estate, irrespective of the terms of the will.
This melting pot of potential issues is best addressed early and openly wherever possible.
There are a variety of legal solutions available to implement the succession plan once it is in place.
Often a combination will be used to meet the overall objectives – wills to deal with succession on death; powers of attorney to deal with incapacity in lifetime; family charters or succession plans to document the overall plan and strategy for the future of the business; articles of association and shareholders’ agreements to govern the running of the business; trusts to hold shares allowing a passing of value without sacrificing control.
The key starting point to bringing these strands together is to have that initial conversation with the business participants, open the lines of communication and get the issue on the agenda.
Clarity, certainty and a solid plan will go a long way to ensuring the future success of Scotland’s food and drink businesses through the generations.
Fiona Clarke is a senior associate, private capital, at Burness Paull.
Preparation is key ingredient of selling up
For many business owners in the food and drink sector, their company is a labour of love and one in which they invest much more than time and capital. So no matter what route they choose to take, the future is something constantly at the back of their mind, writes Paul Scullion.
For many owners, this future may involve selling up one day – whether to a competitor, an international or private equity buyer, or the next generation of management.
Selling up can be life-changing. It can also be time consuming and stressful. The tips below will help you prepare if you are thinking of selling.
Planning ahead will make the process quicker and smoother, and the proposition more attractive to potential buyers.
Five key things to take into account are:
- Valuation: speak to your financial advisers about valuing your business. This will help set your price expectations and inform your decision on whether now is in fact the right time to sell.
- Be “diligence-ready”: buyers will carry out due diligence over all aspects of your business. Get ahead of the curve by ensuring your books and records are thorough and up-to-date; any intellectual property which is key to your business is registered in the company’s name; and that you have fully signed copies of all key customer/supplier contracts, and the title deeds/leases to the company’s land and buildings. Organise all of this so it can be provided to prospective buyers upon request.
- Correcting issues: consider any issues within your business which might put buyers off or frustrate a sale. Are there fellow shareholders who might prove difficult? Or a potentially costly tax issue or customer/supplier dispute? Ask yourself if these can be fixed now, before they impact on your sale value.
- Structure: speak to your legal and tax advisers to ensure your company structure is “sale-ready” (for example, would you qualify for entrepreneur’s relief if your business was sold tomorrow?) or whether any pre-sale restructuring is required. Tax reliefs often depend on holding shares for a minimum period, so don’t assume such matters can be addressed at the last minute.
- Advisers: you’ll need an experienced team of legal, financial and tax advisers. They can help you identify and address pre-sale issues and guide you through the sale process.
Knowing you are as prepared as you can be leaves you with more freedom to take a moment to consider – “what next?”
Paul Scullion is a senior associate, corporate finance, at Burness Paull
Why your property choice is fundamental to your food or drink business
Keeping your food or drinks business poised to deal with the future requires forward planning, writes Graeme Bradshaw.
Core business means addressing increasing regulation, competition and shifting consumer trends.
In the face of such challenges, other business fundamentals can be overlooked.
Property is one such fundamental. Many in the food and drink sector lease, rather than own, the properties from which they operate, so what real estate checkpoints should every future ready tenant be considering?
- Notice to quit: many tenants are unaware that their lease will not automatically end on the stated termination date.
Although there may be no mention of it in your lease, you (or your landlord) must issue a notice to quit to ensure that the lease comes to an end.
If you do nothing your lease could continue for a further 12 months!
- Break option: early exit clauses or “break options” are increasingly common. If you are relying on one to leave your current premises, there are a number of things to look out for.
You will need to issue a written notice to your landlord to activate the break option. Often the notice needs to be served up to 12 months before the break date – so watch out.
Some break notices require payment of a cash sum or that all rent and service charge is paid up to date.
Get it right or you may lose your right to terminate the lease.
- Rent deposits: if you gave your landlord a rent deposit at the start of your lease, make sure you get it back when you leave – it’s easy to overlook.
- Dilapidations: in the property world “dilapidations” refers to wants of repair at your premises which the landlord needs you to make good.
Often a landlord will only pick up on the tenant’s repairing obligations just before the tenant leaves.
Be aware and think ahead. Employing your own building surveyor to review the condition of your property and give guidance on dilapidations is always a good idea.
- Sub-tenants: if you sub-lease or share occupation of your premises with others, do not overlook the need to have them move out too. Co-ordinate your exit.
These are only a sample of things to consider, but these loose ends can matter a little or matter a lot.
With Brexit close at hand and less clear than ever, we all need to consider how best to strengthen our businesses now, ready to withstand a fast approaching future and protect Scotland’s food and drink sector.
Graeme Bradshaw is a partner, property, at Burness Paull.