The three most common legal mistakes business owners make when trying to sell their business are not requiring a non-disclosure agreement, not securing a letter of intent, and not working with an experienced business attorney.
Lack of Non-Disclosure Agreement
When selling a business, you may have to deal with hundreds of different documents. If you’re a novice, it’s easy to forget something. One thing you must not neglect is having a potential buyer sign a strict non-disclosure agreement before turning over any sensitive documents.
Before the sale is completed, you are still the owner of the business. The details of your profits, losses, costs, revenue sources, and operations are all proprietary information. If those details were leaked to a competitor, it could harm your business, and it could reduce the value of your business.
In the early stages of a negotiation, you have no way of knowing if the sale will be consummated or not. Before you share any confidential information with a potential buyer, you need to have them sign a carefully-drafted non-disclosure agreement.
This agreement should specify what information is covered by the agreement, and what the enforcement mechanisms for a breach of the non-disclosure agreement are. Without a non-disclosure agreement, you are putting your entire business at risk. A business could even use the information you provided to set up a competing company, including going after your existing customers.
Failure to Secure Letter of Intent
Most sales negotiations run into issues. Many negotiations will completely fall apart, and you will have to start the process over with a new buyer.
When you fail to secure a letter of intent form a potential buyer, you make it easier for a deal to fall apart, and you fail to protect your time and effort. A letter of intent outlines the expectations for the rest of the process. It also usually includes a termination fee should the buyer back out without just cause.
The termination fee makes sure you get something for your time if the buyer backs-out, and it helps ensure you are only working with serious buyers.
Not Working with an Experienced Attorney
Not just any attorney is ready to handle the complexity of a business sale. You need an attorney who is a skilled negotiator, who deeply understands business law, and who has extensive experience in representing sellers in business transactions.
Representing yourself or working with an inexperienced lawyer can lead to mistakes that sabotage your attempts to sell the business, or that leave you on the hook years later for issues in the business that happened after the sale.