8 Ways To Avoid Litigation When You Sell A Business

8 Ways to​ Avoid Litigation When you​ Sell a​ Business
Based on​ recent litigation storm clouds,​ business owners planning exit strategies better batten down their legal hatches .​

As a​ small business owner,​ your company most likely represents a​ significant portion of​ your net worth .​
That’s why it’s crucial not to​ let litigation wash it​ away when the​ time comes to​ convert your years of​ hard work into cash.

Selling a​ business involves substantial amounts of​ money and a​ wide range of​ issues including warranties and representations,​ disclosures and contractual obligations .​
Consequently,​ there are many opportunities for litigation to​ arise .​
Not only is​ litigation highly unpleasant and disruptive to​ your lifestyle,​ it​ is​ also very,​ very expensive - even if​ you​ win .​

But other than wishing,​ hoping and praying,​ what’s a​ small business owner to​ do? Rather than complaining try something more constructive .​

Here are eight strategies to​ follow when selling your business that can help minimize litigation issues.

1 .​ Honesty is​ the​ best insurance policy .​
Tell the​ truth about your business .​
Do not attempt to​ hide any problems or​ issues that,​ if​ left undisclosed,​ might be the​ basis for future litigation .​
Rest assured that the​ cost of​ disclosure in​ a​ transaction is​ very small when compared to​ the​ cost of​ litigation for non-disclosure .​

2 .​ Develop a​ confidential business review .​
This is​ a​ high-quality and comprehensive document that describes your business and its background .​
Within this document,​ clearly disclose any negative issues that are involved in​ the​ business .​
Not only will disclosure reduce litigation risks,​ it​ will also add to​ your credibility with potential buyers and save you​ time by eliminating those who are unwilling to​ accept the​ realities of​ your business.

3 .​ Accurately communicate historical financial results .​
Do so in​ a​ manner that demonstrates the​ earning power of​ your business .​
Ideally,​ this information will be presented in​ a​ summarized format that recasts your discretionary and certain other expenses to​ show EBITDA (Earnings Before Interest,​ Taxes,​ Depreciation and Amortization).

4 .​ Require your buyer to​ go through extensive due diligence .​
Due diligence is​ the​ process by which a​ buyer conducts an​ independent investigation of​ the​ information you​ have provided about your business .​
The written due diligence materials should be incorporated into the​ final legal documents to​ minimize your litigation risks .​

5 .​ Assemble a​ strong team of​ experienced professionals .​
Your accountant and your attorney will play key roles,​ and their expertise will reduce litigation risks .​
you​ may also benefit from the​ assistance of​ an​ experienced intermediary,​ broker,​ or​ merger and acquisition firm that specializes in​ selling privately owned businesses .​
However,​ before hiring an​ intermediary,​ make certain that they do not charge up-front fees and that they have a​ litigation-free track record.

6 .​ Ensure that closing documents are thorough and complete .​
Not only must these documents contain appropriate legal language,​ they also must anticipate and address potential disagreements that may occur after closing – disagreements on​ issues like equipment or​ inventory values and condition,​ collection of​ accounts receivable and more .​
These issues are easily addressed during the​ courtship phase with a​ buyer,​ but they can cause major problems after the​ transaction is​ closed and the​ honeymoon phase is​ over.

7 .​ Be careful with employment,​ transition and consulting agreements .​
If you​ enter into longer term agreements with your buyer,​ make sure the​ terms are entirely consistent with your retirement plans .​
Otherwise you​ run the​ risk of​ being unwilling or​ unable to​ perform your obligations,​ and that can lead to​ litigation .​

8 .​ Maintain confidentiality throughout the​ entire selling process .​
Although confidentiality will not directly protect you​ from litigation,​ it​ will help minimize the​ risk of​ losing valuable employees,​ customers and vendors during the​ process .​
One of​ the​ best ways to​ avoid litigation is​ to​ help ensure your buyer’s success,​ because that success significantly reduces the​ basis for damage claims.

The goal is​ a​ successful,​ worry-free transition .​
Take the​ time to​ recognize and act on​ the​ many opportunities you​ have to​ minimize your litigation risks and reap the​ benefits later.
8 Ways To Avoid Litigation When You Sell A Business 8 Ways To Avoid Litigation When You Sell A Business Reviewed by Henda Yesti on April 16, 2019 Rating: 5
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