A common mistake many make when preparing to buy or sell a business is to overlook the variety of legal issues involved. A legal mistake can bring the entire process to a screeching halt, or even worse, cost you a small fortune. For this reason, it is important to carefully evaluate the full slate of relevant legalities. This article will explore some of the key legal points you need to consider long before placing your business on the market, and identify three mistakes you can avoid.
Mistake #1: Neglecting to Have a Non-Disclosure Agreement
Having potential buyers sign a Non-Disclosure Agreement, or NDA, is critically important when selling your business. One benefit of having this agreement signed and sealed is that if the deal falls through, which often happens, the buyer cannot disclose the details to other parties. If you don’t have an NDA, the buyer could reveal important aspects of your discussions. This could impact any future sale.
Mistake #2: Failing to Get an Experienced Attorney
There are times to cut corners and there are times when cutting corners, or trying to save a dollar, is a big mistake. Prepping to sell your business is one of those occasions where investing in good and proven counsel is a must. A good attorney can discuss with you a range of legal moves you should and should not make.
Additionally, hiring an attorney with established experience is just what you need to create ironclad agreements. Sellers face a variety of risks when selling a business. For example, the seller needs protection from a potential buyer hiring away key employees. Without ironclad agreements and a tight NDA, a buyer could pass on buying the business, yet “steal” employees or weaken the business in other ways.
Mistake #3: Skipping the Letter of Intent
Another legal way to protect your interests comes in the form of a letter of intent. This letter should be one of your key tools in negotiating the deal. Included in this letter should be a termination fee for the buyer. This applies in the event that the buyer walks away for a reason that is not the seller’s fault. Inclusion of this clause means that the seller is far less impacted if the deal does not go through as planned. Furthermore, this clause goes a long way in ensuring that only serious buyers are attracted.
Reap the Benefits of Ample Preparation
These are just a few of the many errors that sellers often make and regret later on. It is a worthwhile investment to take the legal aspects of selling your business seriously. If you properly prepare for the sale of your business, you will have a much more successful experience. That means you should work with a proven and competent attorney and business broker before you put your business on the market.
Copyright: Business Brokerage Press, Inc.
Photo: iStock Photo, copyright Choreograph
Leave a comment