Common Mistakes When Buying or Selling a Business

Posted on 31. Jul, 2017 by in Bookkeeping Articles, Small Business Tips

Common Mistakes When Buying or Selling a BusinessIt is said with every major purchase there’s some kind of remorse either on the part of the buyer or the seller. This can be especially true when buying or selling a business. No matter which side of the negotiating table you sit on, there are some critical areas that could leave you with feelings of regret. Avoid these mistakes and you’ll feel better about your deals after they’re done.

Selling Price

Seller Mistakes:

  • Not researching the value of similar businesses within the industry
  • Overestimating the value of the company and losing a well-qualified buyer
  • Insisting on cash-only terms

Buyer Mistakes:

  • Overpaying based on emotion
  • Stretching personal resources too thin

Accounting Records

Seller Mistakes:

  • Maintaining sloppy financial records that potential buyers cannot trust

Buyer Mistakes:

  • Relying on company financials not prepared by a third-party accounting professional
  • Not requesting payroll returns and other tax filings in the financial review

Financing

Seller Mistakes:

  • Agreeing to seller-financing without proper vetting of the buyer’s creditworthiness

Buyer Mistakes:

  • Settling for a high-interest loan, or one with too short a maturity

Assets

Seller Mistakes:

  • Selling the assets of the business when it would have been more tax-efficient to sell the corporate shares instead

Buyer Mistakes:

  • Purchasing less than all of the assets used in the business, overlooking items such as licenses, patents or important contractual arrangements
  • Making a stock-purchase transaction without understanding the benefits of an asset purchase

Due Diligence:

Seller Mistakes:

  • Neglecting to check the background of the buyer and assessing their ability to run a business
  • Failing to verify the buyer’s liquid assets

Buyer Mistakes:

  • Not asking why the business is for sale
  • Conducting too little research into the competition or overall industry trends
  • Not searching for the existence of company loans and other liabilities

Non-Compete

Seller Mistakes:

  • Signing a non-compete agreement that is too restrictive in scope or timeframe

Buyer Mistakes:

  • Failing to require a non-compete clause from the seller, especially in a service-industry business

Transition

Seller Mistakes:

  • Leaving too much of the sale price dependent on the ongoing success of the company

Buyer Mistakes:

  • Having unclear expectations for seller participation in the business after the sale

Expert Help

Seller Mistakes:

  • Not positioning the business to sell well in advance of the first offer
  • Requesting professional help too late in the sales process

Buyer Mistakes:

  • Not assembling a team of legal, tax, and insurance experts before agreeing to terms

Buying or selling a business is likely one of the most important transactions an entrepreneur faces. It is always best to seek professional help.

As always, should you have any questions or concerns regarding your situation please feel free to contact us.

Tags: , , , , , , , , , , , ,

Comments are closed.