You’ve put a lot of time, money, energy and resources into building a successful business or product, and now that it is time to sell the company or your rights to the product, you want to ensure that your interests are well-protected. It’s essential for business owners to not only fully understand their company’s current condition but also the legal and financial consequences of potential sales agreements.
The right preparations can ensure you come to an arrangement that benefits both you and the buyer. Below, eight experts from Forbes Finance Council share steps entrepreneurs can take to safeguard themselves when it’s time to sell their business or the rights to their product.
- Get clear on the actual worth of your business.
You need to know the worth of what you’re selling. Much too often, business owners either take the first “good” offer or simply think they know what their business is worth. Often this is based on the emotional value they place on their business versus its real market value. Hire an experienced sell-side due diligence team to scour your numbers and develop the real financial base of your company’s worth. – Chris Tierney, Moore Colson CPAs and Advisors
- Understand exactly what’s being sold.
Having a clear view of what is being bought or what is being sold is crucial; this applies to rights, trademarks, patents and intellectual property in general. It is a very complex environment — especially when various jurisdictions are involved — and professional input will need to be engaged (likely an IP lawyer with global experience). A further note is that if the contract doesn’t state it, it doesn’t exist. – Jason Hamilton, First River Capital
- Consider the value of intangible assets.
Recognize what you’ve got. Some business owners fail to consider the value of intangible assets such as customer lists, recipes, research and the goodwill they’ve built. As a result, many underestimate the value of their businesses. Worse yet: Some in professional service industries have been known to just close up shop and walk away. That’s why it’s a good idea to enlist a business broker. – Brian Slipka, True North Equity Partners
- Involve your accounting and legal teams.
Discuss these opportunities with your trusted accounting and legal teams. Your accounting team can help clarify tax implications and current industry and market trends, while your legal team can provide perspective on state and federal laws surrounding the transaction. These experts can provide objective guidance when you’re making the decision to sell. – Kelly Shores, GCubed, Inc.
- Seek out industry-specific lawyers.
Paying for good lawyers who have specific expertise in your industry is one of the best investments you can make. It has always added more value than it has cost me in any transaction. – Will McDonough, Corestone Capital
- Retain a maximum equity stake leading up to the sale.
My main advice would be for the entrepreneur to strive to keep a maximum equity stake in their own business. Equity gives control, and the more equity you have, the more control you will have over the sale process, including timing, price and key terms. – Michael Szalontay, Flashpoint Venture Capital
- Make sure you fully own the intellectual property.
Ideally, you’ve preempted any questions about IP with robust employee and vendor contracts. Hire an attorney to confirm you actually do own all your IP. If there is a potential that you don’t, work with the attorney to address or buy the rights before you start thinking of a sale. This process is much harder (and more expensive) when a sale is on the table. – Aaron Spool, Eventus Advisory Group, LLC
- Decide the basic terms of the deal yourself.
Don’t let the attorneys make the deal for you. You built your company or product, and you know best how to sell your company or product. The basic terms of the deal should always be driven by you — the details you can leave up to the attorneys. – Joseph Orseno, Tiltify
