Ten Pitfalls to Avoid When Selling

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6. Running Off With the Highest Bidder

When it comes to ownership transfer, the highest price bid may actually be one of the worst deals for the seller. A number of critical issues could override a decisive price difference among competing bids:

* Financial wherewithal of the buyer to close the deal

* Contingent liabilities that the seller must accept for some period of time after the sale, such as those related to:

- Environmental problems,
- Pending litigation, and
- Salability of inventory.
* Contingencies or "outs" in the buyer's offer, such as due diligence, environmental audits, financing, board or parental approval

* Employment agreements for the seller and key employees, including length and level of compensation, and

* Form and timing of consideration to be paid if other than cash, such a s note, stock and earn-out.

7. Information Leaks

More than likely, you're not going to be able to keep the fact that you are selling the business a secret. It is best to avoid conflicts and protect your credit ability by being direct with employees and key customers about the news, on your own terms.

8. Favoring The Fast Track

Letting one attractive buyer get on the "fast track", far ahead of the buyer pack, will cause you to lose your greatest weapon: other bidders. The key is to build competition, to force buyers along your schedule and not to theirs. A good advisor will know when the time is right to sit down and hammer out a deal with the buyer.

9. Sparing The Bad News

No one likes to be the bearer of bad news- particularly when the news contains potentially damaging information about a company that is for sale, or reports about the company' key players. Unfortunately, the later bad news becomes public, the greater its threat to derailing the entire deal. By addressing the bad news up front, the seller can establish a strong case and avoid potentially damaging innuendo. Negative reports can certainly impact overall valuation, but cover-ups or omissions, which will undoubtly be discovered during buyer due diligence, could easily result in a broken deal that no price adjustment can repair.

10. Rushing To Market

If you are looking to maximize your company's value, overcome the disruptive effects of a sale, and cash-in when it's all over, don't expect it to happen during an overnight event. High expectations will only disappoint you. Proper positioning takes time. Critical to the successful sale of the business is the development of solid, experienced middle management, particularly if the seller will no longer be involved and running the company.

In addition, strong financial reporting systems and historical statements (preferably audited) are essential. They must support the financial data presented to potential buyers, and ensure that all the required documentation can actually be generated.
Presenting several business plans or prior years and for future years also serves to illustrate the company's value by underscoring its growth potential. As in tax planning, it is much easier to derive the maximum benefit from selling your company if you prepare for it well in advance.