Business Review

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If done correctly, selling your business, just like selling your home, can increase your net worth. But if done incorrectly, you can leave a significant amount of money on the table.

In my experience assisting with the buying and selling of dozens of businesses, I have discovered that the same pitfalls arise time after time. But by understanding what they are and how to avoid them, you can be satisfied with the sale of your business — not just when you hand the keys over, but for years to come.

Below are my top three tips for avoiding the most common mistakes that befall sellers:

1. Carefully craft the non-compete provision.

If there is a non-compete provision, be sure to include a safe harbor for any business ideas you might want to pursue after the sale of your business. The safe harbor should not only create an exception for any similar businesses you would like to work on, but also for any businesses you would like to invest in.

Additionally, the non-compete should include the specific timeframe in which you are prohibited from operating a similar business, as well as the geographic scope. For instance, when selling a business, cap the non-compete at four years within a 40-mile radius of the location.

2. Get as much of the purchase price at closing as possible.

Never was the saying “one in the hand is worth two in the bush” more true than in the payment of the purchase price for the sale of a business. A buyer is not likely to run the business as well as you have and they might have trouble making payments that are stretched over time.

In addition, by getting as much of the purchase price as possible at closing, you will have the opportunity to invest that capital or enjoy it yourself.

If payment is stretched out over time, be sure that it is secured by the assets being purchased, and ideally by other collateral to help make sure you will get the full sale price.