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August 22, 2017 | Posted in:

Common Mistakes to Avoid in Buying or Selling a Business

It is said with every major purchase there’s some kind of remorse – either on the part of the buyer or the seller. This can be especially true when buying or selling a business. No matter which side of the negotiating table you sit on, there are some critical areas that could leave you with feelings of regret.
 

Alloy Silverstein’s CPAs and business advisors, along with tips from Associate Partner Richard Middleton, CPA, offer what mistakes both buyers and sellers need to avoid in order to make an easier, more efficient sale.

 

SELLER MISTAKES

 BUYER MISTAKES

  • Not researching the value of similar businesses within the industry

  • Overestimating the value of the company and losing a well-qualified buyer

  • Insisting on cash only terms

Selling Price

  • Overpaying based on emotion

  • Stretching personal resources too thin
  • Maintaining sloppy financial records that potential buyers cannot trust

Accounting Records

  • Relying on company financials not prepared by a third-party accounting professional

  • Not requesting payroll returns and other tax filings in the financial review
  • Agreeing to seller financing without proper vetting of the buyer’s creditworthiness

Financing
  • Settling for a high-interest loan, or one with too short a maturity
  • Selling the assets of the business when it would have been more tax efficient to sell the corporate shares instead

Assets

  • Purchasing less than all of the assets used in the business, overlooking items such as licenses, patents or important contractual arrangements

  • Purchasing corporate shares rather than assets

  • Neglecting to check the background of the buyer and assessing their ability to run a business.

  • Failing to verify the buyer’s liquid assets

Due Diligence

  • Not asking why the business is for sale.

  • Conducting too little research into the competition or overall industry trends.

  • Not searching for the existence of company loans and other liabilities.
  • Signing a non-compete agreement that is too restrictive in scope or time frame.

Non-Compete
  • Failing to require a non-compete clause from the seller, especially in a service industry business.

  • Leaving too much of the sale price dependent on the ongoing success of the company.

  • Failing to consider subsequent year “earn-outs” to enhance the potential gain.

Transition
  • Having unclear expectations for seller participation in the business after the sale.

  • Not positioning the business to sell well in advance of the first offer.

  • Requesting professional help too late in the sales process.

Expert Help
  • Not assembling a team of legal, insurance, and tax experts before agreeing to terms.

 

Consult your Business Advisor

Buying or selling a business is likely one of the most important transactions an entrepreneur faces. Fortunately, Alloy Silverstein’s experienced CPAs and business advisors have walked many Philadelphia area business owners through the purchase or sale of their business. Learn more about our Advisory and Consulting solutions and let’s have a discussion to help you through the process.

 

Contact us for guidance and application to your individual situation →
 
The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information or for assistance with any of your tax or business concerns, contact our office at 856.667.4100.

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