The Three Biggest Legal Mistakes When Selling a Business
Paying close attention to legal issues is critical when selling a business.
Paying close attention to legal issues is critical when selling a business. A single legal mistake can stop a sale before it gets off the ground—or worse, cause the sale to come back to bite you years later. You could spend a small fortune trying to unravel even the smallest error. So it’s important to have a good understanding of legal issues before you sell. A skilled M&A attorney is critical here. Don’t try to do it yourself, or you’ll almost certainly miss something.
Not Having a Non-Disclosure Agreement
Every sale requires a non-disclosure agreement (NDA) before you begin serious negotiations. These agreements protect sellers if a sale falls through because the buyer is prohibited from disclosing sensitive information to competitors or other third parties. Without an NDA, there is nothing preventing a buyer from sharing whatever they learn about your business. Worse still, a competitor might pose as a buyer specifically to gain access to sensitive information.
Not Hiring an Experienced Attorney
All businesses want to save money, but cutting corners on legal representation can be a costly mistake. You need skilled counsel—and not just any attorney. You must hire someone who specializes in mergers and acquisitions, since they know the industry and can identify and prevent common legal issues. For many businesses your in-house attorney is too institutionalized to shepherd the process to completion. They may know how to run daily operations, but know little about the logistics of a sale. So consider contracting with an outsider.
Not Using a Letter of Intent
A letter of intent is in the seller’s interest. It pre-negotiates much of the deal, cutting down on negotiating time later and preventing the deal from stalling. LOIs can be binding or non-binding, though binding agreements work strongly in the seller’s favor. Take the time to negotiate a letter of intent that outlines the basic deal terms, the schedule for due diligence and negotiations, and other key deal milestones. Then have your attorney look over it before anyone signs. When you’re ready to close, negotiating the LOI will expedite the process of drafting closing documents.
While these errors are common, they aren’t the only mistakes sellers make. Ample preparation is key to unlocking the best possible sale price and the most favorable deal terms. The right deal advisory team can help you hire a great attorney, identify key value drivers, and chart a course to the most rewarding deal possible.