Seven Steps to Avoid Mistakes in Business Sales

By Josef Keglewitsch, Ice Miller LLP

The mere fact that an owner has successfully built and operated a business does not necessarily translate into that owner having a similar level of success in exiting the business. In fact, all too often, potential business sales are either aborted or miss their mark, with the point where the deal went astray generally being traceable to a short list of avoidable mistakes.

  1. Evaluate your position. Many businesses are simply not in a position to be sold. Any company considering a sale in the coming years ought to make scrutinizing the salability of the business a part of its regular business evaluation. Without the proper management structure, financial controls and key customer and vendor relationships, a sale can be grounded before it even takes off.
  2. Discuss issues early. If the business has weaknesses, it is best to avoid the natural inclination to bury or ignore them. Being forthright with the buyer and getting issues out in the open early is the better course of action. Playing hide the ball can cause the parties to distrust each other and, worse yet, can cause problems only when it is too late to find a solution. Issues uncovered later in the process have a greater tendency to be reflected in a reduction or restructuring of financial terms than those that are on the table from the outset.
  3. Don’t wait for the deal. Advanced planning is a key to success, and driving the process is the best way to ensure that there is the proper opportunity to conduct such planning. Initiating the process also allows the seller to seek as many bidders as possible, maximizing the sales price and terms. Sellers that wait for a buyer to come to them tend to be stuck evaluating a single offer or scrambling to bring other players to the table in a slapdash fashion.
  4. Ask the hard questions. Unless you understand what you want out of the business sale – beyond a big pay day – you can fail to properly address critical non-economic terms and personal issues. Do you want to ride off into the sunset, or is it important to remain active in the business? Can you tolerate the idea of working for others and no longer being your own boss? Do you believe the business will benefit from the transition in way that might warrant taking a risk and participating in the upside? Do you have family members you want to remain involved in the business? If a deal is going to be a success on multiple levels, the consideration of key terms must be just as multi-layered.
  5. Understand the non-economic considerations. The answers to those introspective questions also can lead to central deal terms. All too often, the letter of intent stage of negotiation does not extend beyond financial issues, but a variety of non-economic considerations can be equally contentious issues and, if the parties are not on the same page early, the types of flash points that can derail a transaction. Noncompete terms, the scope of excluded assets, retention of key employees and limitations on indemnification obligations are just a handful of the critical points that go beyond dollars and cents.
  6. Bring in a professional. While it may sound self-serving, many deals die or get off track because professionals were not involved early enough in the process. While that is particularly true of attorneys and accountants, insurance professionals, benefits administrators, appraisers and related advisors can provide valuable insights and be instrumental in the due diligence phase. A dearth of experience also can cause a seller to fail to consider viable alternatives to an outright sale (including the sale of a division of the business only, debt-financing or joint ventures) or more creative economic terms to structure a richer deal, such as earn-outs, seller financing or post-closing employment or transition services compensation.
  7. Don’t rush to close. While timing can be everything in a deal, rushing to get a deal closed is rarely in anyone’s interest. Beyond the obvious mistakes that can be made and alternative structures and terms that can be missed as a result of haste, unrealistic deadlines are rarely met and blown target dates can be a source of contention between the parties. They also tend to give the buyer the “out” not to negotiate certain points simply in the interest of time.

Any postmortem of a failed business sale will invariably reveal some combination of these all too common mistakes. Going into a potential deal with these pitfalls in mind can allow a seller to maximize all facet of the transaction’s value, while minimizing the headaches.

Joe Keglewitsch is a partner at Ice Miller LLP and handles complex corporate and business law issues for both private and public companies, with a focus on and extensive experience in the following areas: mergers and acquisitions, general corporate counsel and complex commercial relationships. He can be reached at 614.462.2279 or

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.