Naperville Business Lawyer on Common Mistakes to Avoid When Selling Your Business
Making the decision to sell a business is never easy. If you are a business owner, you have probably invested a tremendous amount of time, energy, and effort into running the company. You might be interested in selling the business because you are ready to retire, you want to move on to new business ventures, or because you are simply ready for a change. Whatever your reasons may be, selling a business can be a complicated process.
In my practice as a business law attorney, I have helped many clients successfully sell their businesses, often at a significant profit. To maximize the benefits of the sale and to prevent needless frustration, be sure to avoid some of the most common mistakes business owners that make when they are looking to sell a business.
Being Underprepared for the Sale
Before you begin taking steps to sell the business, it is important to make your business as attractive as possible to potential buyers. A strong customer base, consistent income, long-term contracts, and increasing profits can all make your business especially appealing to potential buyers. Furthermore, a thorough buyer will likely want to review several years’ worth of profit and loss statements, tax returns, supplier and vendor contracts, bank statements, leases, and other paperwork. Start organizing this information now. The majority of brokers suggest business owners begin preparations at least two years before they list the business for sale, so avoiding procrastination is crucial.
Overvaluing or Undervaluing Your Business
You have probably put a great deal of blood, sweat, and tears into building your business. Understandably, the great personal investment many business owners put into their company can sometimes cause them to overestimate the financial value of the business. Other business owners underestimate the value of their company because they do not account for things like future opportunities for growth.
Properly valuing your business is critical to getting a fair price. Many small businesses are priced at approximately two times the annual cash flow, but cash flow is only one of many factors that should be considered during valuation. Help from a business appraiser may be necessary to determine your business’s true value.
Forgoing a Non-Disclosure Agreement
In an ideal world, business owners could trust that the information made available to potential buyers will not be misused. Unfortunately, the reality is that business owners can be taken advantage of during sales negotiations. Dishonest individuals may pretend to be interested in buying your business when they are really just fishing for information that they can use as leverage in other business dealings.
A potential investor or buyer may have access to your business’s financial details, business strategies, client information, and more. Asking potential buyers to sign a non-disclosure agreement (NDA) or confidentiality agreement about the information they learn could protect you both legally and financially.
Contact a Naperville Business Sales Lawyer
It is never a mistake to ask for assistance, especially in complicated matters. For help drafting non-disclosure agreements, selling a business, or for other business law needs, contact an experienced DuPage County business law attorney at the Gierach Law Firm. Call our office at 630-756-1160 to schedule a confidential consultation.