| "body"> | | | | buyer conducts an independent investigation of the |
| Based on recent litigation storm clouds, business | | | | information you have provided about your business. |
| owners planning exit strategies better batten down | | | | The written due diligence materials should be |
| their legal hatches. | | | | incorporated into the final legal documents to minimize |
| As a small business owner, your company most likely | | | | your litigation risks. |
| represents a significant portion of your net worth. | | | | 5. Assemble a strong team of experienced |
| That's why it's crucial not to let litigation wash it | | | | professionals. Your accountant and your attorney will |
| away when the time comes to convert your years | | | | play key roles, and their expertise will reduce litigation |
| of hard work into cash. | | | | risks. You may also benefit from the assistance of an |
| Selling a business involves substantial amounts of | | | | experienced intermediary, broker, or merger and |
| money and a wide range of issues including | | | | acquisition firm that specializes in selling privately |
| warranties and representations, disclosures and | | | | owned businesses. However, before hiring an |
| contractual obligations. Consequently, there are many | | | | intermediary, make certain that they do not charge |
| opportunities for litigation to arise. Not only is litigation | | | | up-front fees and that they have a litigation-free |
| highly unpleasant and disruptive to your lifestyle, it is | | | | track record. |
| also very, very expensive - even if you win. | | | | 6. Ensure that closing documents are thorough and |
| But other than wishing, hoping and praying, what's a | | | | complete. Not only must these documents contain |
| small business owner to do? Rather than complaining | | | | appropriate legal language, they also must anticipate |
| try something more constructive. Here are eight | | | | and address potential disagreements that may occur |
| strategies to follow when selling your business that | | | | after closing - disagreements on issues like equipment |
| can help minimize litigation issues. | | | | or inventory values and condition, collection of |
| 1. Honesty is the best insurance policy. Tell the truth | | | | accounts receivable and more. These issues are easily |
| about your business. Do not attempt to hide any | | | | addressed during the courtship phase with a buyer, |
| problems or issues that, if left undisclosed, might be | | | | but they can cause major problems after the |
| the basis for future litigation. Rest assured that the | | | | transaction is closed and the honeymoon phase is |
| cost of disclosure in a transaction is very small when | | | | over. |
| compared to the cost of litigation for non-disclosure. | | | | 7. Be careful with employment, transition and |
| 2. Develop a confidential business review. This is a | | | | consulting agreements. If you enter into longer term |
| high-quality and comprehensive document that | | | | agreements with your buyer, make sure the terms |
| describes your business and its background. Within | | | | are entirely consistent with your retirement plans. |
| this document, clearly disclose any negative issues | | | | Otherwise you run the risk of being unwilling or |
| that are involved in the business. Not only will | | | | unable to perform your obligations, and that can lead |
| disclosure reduce litigation risks, it will also add to your | | | | to litigation. |
| credibility with potential buyers and save you time by | | | | 8. Maintain confidentiality throughout the entire selling |
| eliminating those who are unwilling to accept the | | | | process. Although confidentiality will not directly |
| realities of your business. | | | | protect you from litigation, it will help minimize the risk |
| 3. Accurately communicate historical financial results. | | | | of losing valuable employees, customers and vendors |
| Do so in a manner that demonstrates the earning | | | | during the process. One of the best ways to avoid |
| power of your business. Ideally, this information will | | | | litigation is to help ensure your buyer's success, |
| be presented in a summarized format that recasts | | | | because that success significantly reduces the basis |
| your discretionary and certain other expenses to | | | | for damage claims. |
| show EBITDA (Earnings Before Interest, Taxes, | | | | The goal is a successful, worry-free transition. Take |
| Depreciation and Amortization). | | | | the time to recognize and act on the many |
| 4. Require your buyer to go through extensive due | | | | opportunities you have to minimize your litigation risks |
| diligence. Due diligence is the process by which a | | | | and reap the benefits later. |