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1. Use good advisers. If you are experienced in selling businesses, you already know this. If you are not, be advised that selling a business without good advisers is like walking through a minefield blindfolded—it is possible to avoid a catastrophe, but the risk is generally not worth it. The basic lineup typically includes a corporate attorney, a tax attorney and/or accountant, a financial accountant and an investment banker.

2. Make a plan before you get started. Talk to your advisers before you talk with potential buyers. If you are not experienced with selling a business, you need to understand what you are getting into—the time required, the distraction in operating your business, costs such as valuation fees, etc. In any event, you need a plan of attack outlining the desired terms of the deal, identifying key issues to be addressed and mapping out action items and timing. This usually will change over time, but failure to plan can have nasty consequences, such as realizing just before closing that you failed to consider a tax issue that will significantly reduce what you are going to get paid. Initial planning can involve as little as an hour or two with your advisers.

3. Know what price you want and whether it is justified. Don’t bother to get into the selling process unless you have a good idea of what you are willing to sell your business for and whether or not that is a reasonable price to expect. Advisers can help you determine what a third party might pay. There is no use going further if you determine that the minimum price you will accept is significantly higher than what others will pay. Either your expectations are unrealistic, or you need to wait until the market for your company improves.

4. Sell when you don’t need to. Try to sell at a time when not doing a deal is a comfortable option for you. The ideal business to sell is a very profitable, growing company, but a company that is generally stable and profitable can certainly do a respectable deal. Waiting to sell after the business founder with all of the key customer relationships dies is a recipe for disappointment.

5. Term sheets are your friend. Relatively early in the selling process, you usually want to sign a term sheet that covers the material terms of the deal. If you and the buyer can’t agree on a term sheet, there is no reason to waste time on full due diligence and negotiation of deal documents.

6. Know when to walk. Some buyers will try to renegotiate deal terms based on problems later uncovered in due diligence or issues with their financing. This may be entirely legitimate.
On the other hand, attempts to renegotiate can be a red flag that you have a buyer likely to cause you other problems. The buyer who insists on putting a lot of the purchase price in escrow due to minor due diligence issues may be a buyer who will drag you into litigation over questionable indemnification claims after closing. Even if the buyer is being reasonable, you need to consider whether the proposed revisions make the deal unacceptable. Do not get caught up in “deal fever.” No deal can definitely be better than a bad deal.

7. Don’t forget taxes. Rarely do sellers actually forget the issue of taxes, but timing can be a key issue. Different deal structures can dramatically affect the tax consequences to the seller. You don’t want to try to renegotiate the purchase price after you sign the term sheet because you failed to analyze tax issues before you signed.

8. Beware delayed or contingent payment. Consult with your advisers before agreeing to any delayed or contingent payment of the purchase price. Delayed payments are only as good as the credit of the person who is promising to pay.
If the buyer loads your company up with debt and the company is supposed to pay you 50 percent of the purchase price over two years, you may never see that 50 percent if the extra debt causes the company to fail. Contingent payments—such as an “earnout” where payments are made based on the earnings of the company after the sale—can be a nightmare for the seller. They are often very difficult to structure and enforce.
Buyers may accelerate expenses to reduce earnings, and it is often very difficult for the seller to ensure that the buyer is reporting accurate performance numbers. A seller may have to resort to litigation to determine whether the buyer is cheating and/or to enforce the earnout.