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Tips for selling your business

Thinking about selling your business? You need to consider these issues before making any final agreements. The process of selling a business involves negotiation and leverage, much like when incentives are given to employees for a job well done. When selling your business, it is vital to have a letter of intent to protect your interests.

The letter of intent should, under most circumstances, include a "no shop" clause that terminates all other discussions with all other potential buyers during the closing. Below are a few other things to consider when it comes to selling your business.

Signing the letter of intent

Upon signing the letter of intent, the buyer now has the majority of the power and can take their time with their investments in your company. This passage of time helps you become more committed to the sale of your business. Buyers with experience will drag the process out to consistently seek lower prices and terms that work in their favor. This situation leaves you with two options:

  1. You can accept terms you're not happy with.
  2. Walk away from the deal altogether.

The reason for this is because you've signed the agreement that sidelines other potential buyers. Legally, you can't get into talks with them while this deal is active. You can prevent a bad deal from dragging out, though.

How can you prevent a bad deal? Below are some tips to consider:

  • Use successor clauses: When customers sign standardized contracts that are long-term, they should include a clause that states the contract will survive throughout company ownership.
  • Create references: Buyers will want references before signing an LOI, so it's up to you to find at least ten to fifteen customers you frequently to business with to ask.
  • Management is a team: Is your management team all on the same page? Buyers are going to check during independent interviews to see if their pulling for the company.
  • Be up front: All financial risks must be disclosed to buyers immediately.
  • Negotiate during due diligence: Complete negotiations between 30 to 45 days, even if buyers are asking for more time.
  • Be clear: Other interested buyers are waiting, and this buyer should be aware of that fact.

Contact an attorney

Because there are many in's and out's of selling a business, it's often a good idea to contact an attorney about the process. They'll help not only with the paperwork involved but also the negotiations.

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