Selling a business is a complex process that requires careful planning and legal expertise. As a lawyer specializing in business sales, I have seen many vendors make avoidable mistakes that can jeopardize their transactions. Here are some common pitfalls and how to avoid them:

1. Not Using a Lawyer

One of the biggest mistakes vendors make is not seeking legal advice. Without a lawyer, vendors may not fully understand their rights and obligations, leading to legal issues and complications. This can delay deals and negatively impact both parties. Vendors often try to save money by not hiring a lawyer, but this can result in contracts that are not structured correctly, unexpected obligations, and increased costs for the other party. It's cheaper to pay a lawyer than to lose out on your sale.

2. Not Renewing the Deed of Lease

Failing to renew the lease for the business premises can be a serious concern. Without secured tenure, vendors risk losing the premises, which can be detrimental to the sale process. Vendors may avoid renewing the lease to save costs or avoid being a guarantor, but this can delay the inevitable and result in losing the right of renewal. It's important to decide whether you are selling a going concern or closing shop.

3. Not Getting Your House in Order

Disorganization can cause transactions to fall through during due diligence. Inaccurate or incomplete financial records can deter potential buyers and result in breaches of warranty. Vendors may be too busy to work on the sale of the business, but it's crucial to have accurate and readily available due diligence information. This includes financials, employee information, terms of trade, policy documents, and intellectual property.

4. Not Doing Due Diligence on Buyers

Vendors often waste time and effort on failed sales by not properly vetting buyers. This can lead to risks such as non-payment on vendor finance deals and non-satisfaction of landlord’s consent conditions. It's important to prequalify buyers and not accept just anyone.

5. Not Being Honest with the Broker

Misleading the broker about the vendor's involvement in the business can result in incorrect representation and breaches of warranties. Vendors may worry that the truth will reduce the purchase price, but honesty is crucial to maintaining good faith and goodwill during due diligence.

6. Having the Business Broker Fill the Gaps

Relying on the business broker to fill gaps due to cost-consciousness can expose the vendor to legal and tax liabilities. Vendors may not be willing to spend money until the purchaser completes due diligence, but this can result in contractual liability and blame finding. It's important to clarify assets included and excluded in the sale.

7. Waiting on Landlord’s Consent

Delays in obtaining the landlord’s consent can hold up the sale process. While there are costs involved, addressing these issues early can prevent major problems later. It's important to find a happy medium on timeframes and weigh up the pros and cons depending on the landlord.

8. Not Using a Specialist Lawyer

A lawyer who specializes in business sales can make or break a deal. Family lawyers who specialize in property and trusts may not have the expertise or experience advising on commercial matters. This can result in delays, breaches of warranty, and depreciated goodwill between parties. It's important to use a lawyer who understands the intricacies of business sales.

Conclusion

In conclusion, selling a business is a significant undertaking that requires careful planning and professional guidance. By avoiding these common mistakes, vendors can ensure a smoother transaction and protect their interests. Engaging a specialist lawyer, being organized, and conducting thorough due diligence are essential steps to a successful business sale. Remember, the cost of professional advice is an investment in the successful sale of your business.

Common Mistakes Vendors Make When Selling Their Business