When it is time to sell your business, it turns out that most entrepreneurs are not ready for this transaction. Such unpreparedness is usually revealed after they get acquainted with the draft sale and purchase agreement drawn up by the buyer’s lawyers. The latter aims at maximum protection of their client’s interests, including in the text of the agreement a section “Representations and warranties”, as well as provisions on liability for their violation. Practice shows that the vast majority of negotiations fail due to the fact that the parties could not reach an agreement on these “representations and warranties.”
We offer to consider the most common mistakes to avoid when selling a business to make this transaction as profitable as possible for you.
Mistakes to avoid when selling a business
Website Closers notes that when you sell a business, you can face many risks for both buyer and seller. Here are some mistakes when selling a business to avoid if you don’t want to give your business away for free:
#1 Offer to buy the business from competitors.
One of the biggest business mistakes. If the company is your direct competitor, it is unlikely to be interested in such a purchase. In this case, you run the risk of losing or destroying your business even before you sell it because, under the guise of a potential buyer, competitors can resort to various actions to harm your business. Even if the competitor is honest with you, he is most often not interested in the equipment, store, or product, only the customer base, which significantly reduces the purchase price.
#2 Underestimation of the team.
Unfortunately, business owners do not always understand the value of the team. Warning employees about possible changes in the business is an easy way to avoid staff loss and data leakage.
At the active stage of the sale, it is necessary to tell employees that the owner plans to do business not alone but with a partner who will participate financially and will be engaged in management.
It is necessary to introduce the new owner and tell them how employees should interact with him now. This way, the new business owner will come into the business organically, and employees will get used to him during the business transfer. After the transition stage is completed, you can announce that from now on the new partner will take over the business completely. All this is important to talk in advance with the buyer of the business.
#3 Installment plan without guarantees.
You should not agree to installments if the buyer is not ready to provide any property as collateral. You should not completely abandon the idea of installments. Otherwise, the business can be sold for a very long time.
#4 Illiterate NDA.
A non-disclosure agreement (NDA) is a confidentiality agreement. Entering into negotiations, the investor requests information about the business, the disclosure of which, without an NDA, may cause a loss of competitive advantage or lead to losses, especially if the company’s buyer is a strategic competitor.
A well-drafted agreement should contain a number of prohibitions for the buyer. In particular, a ban on contacts with employees, customers, and counterparties, a ban on luring or hiring seller employees for a certain period of time if the deal does not take place.
#5 Improper conduct of negotiations.
A lot depends on how competently you can negotiate and convince the buyer that such an acquisition is necessary and will be profitable.
In principle, the sale of a business should be treated very carefully and cautiously; sometimes, competitors come under the guise of a buyer, trying to find out some secrets of your business and find out information about partners. You can protect yourself from this if you act competently.
Of course, the buyer can try to close the deal on his own, but the number of pitfalls is so great that the chances of selling your asset profitably and painlessly, without the mistakes owners make while selling their business, are almost zero. We recommend not letting things take their course and entrusting the sale process to professionals; then, your expectations will be justified, mistakes will be avoided, and the transaction will be profitable and safe.