Five Misconceptions About Selling a Business

Business owners new to the business sale process can fall prey to a handful of common myths that undermine their chances of a good outcome.

The negotiation ends after signing the LOI

So your Letter of Intent is signed. Does that mean you can sit back and relax? One of the most common myths is that negotiation is finished once the LOI is signed.

A LOI is an important step, but it is far from the end. It is often just the beginning of a more detailed and intensive phase. After the LOI, both parties go through due diligence, where key elements of the business get examined in detail. Issues can surface that require further negotiation, or even adjustments to the deal. Treating the LOI as the finish line leads to complacency, and complacency can quickly derail a deal.

All offers are backed by solid financing

It is easy to assume that when someone makes an offer, they already have the funds to complete the purchase. That is not always the case. Some buyers make offers without having secured the financing or capital needed, which wastes valuable time for sellers and keeps them from engaging with more serious buyers. A business broker or M&A advisor can properly screen potential buyers before a seller ever sits down with them.

You can sell your business without a team

Some owners believe they can handle the sale on their own, without a team of experts. It is technically possible, but it is high-risk and can lead to troublesome outcomes. A skilled M&A attorney, a business broker, and the right advisors add real value to the process, and relying on them lets you keep running the business instead of splitting your attention during the sale itself.

You must sell your entire business

Many owners assume selling means giving up 100% ownership. Most buyers do prefer to acquire the entire business, but it is not always necessary to sell all of it. In some cases, selling a minority stake is another option. Exploring a minority deal can offer flexibility, letting you continue benefiting from the business’s future growth while transitioning out of day-to-day operations. However, these are unusual transactions and not that common in Main Street business sales.

You will get all your cash at closing

In some instances, a seller and buyer may agree to some portion of seller financing. Depending on the bank requirements, the payments to the seller may be on “stand by,” meaning interest continues to accrue but the seller doesn’t receive any payments on the loan until a future date. This isn’t necessarily a bad thing for a seller as it can reduce their capital gains, however adequate financial protections need to be in place to ensure loan repayments in the event of buyer defaults.

Engaging the right professionals, doing thorough due diligence, and understanding the nuances of deal structure are what make up the total consideration of a business sale. When in doubt, reach out to have a confidential discussion about your sale objectives.

Mark Herrmann is the founder of Trustmark Mergers & Acquisitions in Charlotte, North Carolina. This article is general information, not legal, tax, or financial advice.