You’ve lined up the perfect buyer. You’ve invested time and probably money into finding the perfect buyer. And then you come to the negotiating table and it all falls apart. Most deal killers are entirely preventable. Here are three common – and potentially costly – sources of premature deal death.
Intellectual Property Disputes With Outside Contractors
Third party contractors or employees might own valuable intellectual property. When it’s time to sell your business, they may lay claim to that which you believe is yours. Particularly if your IP is a major draw, you need to get ahead of these issues.
Clear work-for-hire agreements, employee policies about IP created on the job, and a consultation with an IP lawyer can all help. If you’re already in a dispute, or worry you’re headed for one, it’s often worth your time and effort to buy the other person out of the IP in question. Then move on, learn the lesson, and create better agreements next time.
A Valuable Employee Exits in Advance of the Sale
Most businesses are dependent on their staff. And in some businesses, the loss of a few key employees can decimate the company. If you have critical employees, a buyer will want to know that they intend to stay on board. If they decide to leave, this could kill the deal.
Valuable employees know their own value, and they may use this to their advantage. They might want a piece of the deal, or some other incentive to stay. Clear contracts that include non-compete agreements can protect you in these difficult situations. Without them, you may have to pay a premium to keep a key employee on board. And if the buyer catches wind of a key employee’s anticipated exit, they may change the terms of the deal, or walk away entirely. Then you’re left paying an employee to stay in anticipation of a deal that never gets off the ground.
Low Confidence in the Seller’s Credibility
Buyers are easily scared, particularly early in the process. So sellers need to do all they can to show that they are serious about the deal. This instills confidence that the business is in good shape, and that the owner has taken proactive steps to ensure its smooth operations.
Ensure all forecasts and other predictive documents are readily available. Your accounting should be clear and reliable, and you should disclose any and all issues, including lawsuits, legal exposure, and outstanding taxes. Disclosing negative items can be frustrating, but disclosure is always preferable to uncovering undisclosed issues later.
Be responsive to requests for more information or documents, particularly during due diligence. A rapid, comprehensive response shows you take the request seriously, and that you’ve run the business like a pro.
Perhaps most importantly of all, run your business like a well-oiled machine during the transaction. A business that declines during the pre-sale negotiations is a ticking time bomb. Show buyers what a good value the business is by ensuring it’s well-run up to and through your departure.