Selling your business is a major milestone and is often the result of years of hard work, risk-taking, and hard-earned growth. The process is complex, and even experienced entrepreneurs can make costly mistakes that reduce the value they receive for their business, delay closing, and even lead to costly disputes.
Whether you are planning to retire, pivot to a new venture, or capitalize on an opportunity to sell, here are some common mistakes to avoid when selling your business and how to avoid them. (Classic legal qualifier: This is by no means a list of every mistake that could be made; this is a list of some of the most common mistakes I have found that people make in selling their business.)
Many owners wait until they are burned out, facing declining performance, or reacting to external pressures before starting to look at selling. This reactive approach weakens negotiating leverage and can significantly reduce the value received for the business at the end of the process. Buyers want to acquire businesses that are growing, stable, and well-managed. If you wait until performance dips, you may be forced to accept lower offers or unfavorable terms.
Tip: In an ideal situation, begin planning 2 to 3 years in advance. Use that time to clean up financials, resolve legal issues, optimize operations, and implement tax strategies. A well-prepared business commands a premium. If you do not have that long to plan, start at least 6 to 12 months in advance of a potential closing.
The choice between an asset sale and a share sale affects everything from tax treatment to liability exposure and contract obligations. Many sellers do not fully understand the implications. In an asset sale, the buyer may selectively acquire assets and avoid liabilities, but the seller may face double taxation, which occurs when income is taxed at both the corporate and personal levels. In a share sale, the buyer assumes all liabilities, but the seller may benefit from tax exemptions like Canada’s Lifetime Capital Gains Exemption, which allows Canadian residents to exclude a portion of the capital gains from taxation when selling shares of a qualified small business corporation. The deal structure is often the subject of negotiation, with buyers often favouring an asset purchase and sellers often favouring a share sale.
Tip: Work with your lawyer and tax advisor to determine the best structure for you. Consider how each option affects your tax position, existing contracts, licenses, and employee obligations.
Emotional attachment often leads owners to overestimate the value of their business. Buyers tend to rely on objective metrics like EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which measures a company’s overall financial performance, growth potential, industry multiples (ratios used to value a company by comparing it to similar businesses), risk factors, and the advice of their lawyers, accountants, and tax advisors. Unrealistic pricing can deter serious buyers, prolong negotiations, and even weaken your credibility as a seller. It may also lead to failed deals.
Tip: Get a professional valuation from either a certified business valuator or your accountant. Work with your lawyer and accountant / business valuator to assess your business against comparable transactions and be prepared to justify your asking price with solid financial data and market analysis.
Due diligence is the buyer’s deep dive into your business. If your records are incomplete, outdated, or disorganized, it signals risk. Too much or unnecessary risks (real or perceived) can stall or kill the deal. Buyers and their advisors want transparency and reliability. Missing documents, inconsistent financials, or unresolved legal issues can push a buyer to renegotiate the deal and even walk away.
Tip: Prepare a virtual data room (VDR), or some other organized central database (ideally it is cloud-based, but all due diligence documents should be stored in the same place). Your data room or database should have all of the business’ financial statements, tax returns, contracts, employee records, client/customer information, documentation on all of the assets of the business (land, equipment, inventory, intellectual property, etc.), and other materials requested (or likely to be requested) by the buyers. Anticipate a buyer’s questions and prepare responses in advance with your advisors.
Some sellers try to conceal or minimize issues like pending litigation, customer churn, regulatory investigations, or other issues. This strategy almost always backfires. A lack of transparency erodes trust and can lead to post-sale legal claims for misrepresentation or breach of warranty, for which the buyer can often make a claim based on the seller’s indemnity (which will allow the buyer to recoup their costs on top of general damages). It also increases the buyer’s perceived risk, which can impact the deal.
Tip: Disclose material risks early. Talk about them with your advisors. Document them clearly in the data room or due diligence database, and make sure they are clearly listed in disclosure schedules to the purchase and sale agreement, which is a detailed list of exceptions to the representations and warranties in the purchase agreement and be prepared to explain how they are being managed or mitigated.
Legal and tax issues are often underestimated. Poor planning can result in unexpected liabilities, missed exemptions, or inefficient deal structures. A poorly structured deal can cost you significantly in taxes or expose you to post-sale claims. Plus, legal oversights can delay closing or trigger a range of unintended consequences.
Tip: Engage a lawyer, accountant, and tax advisor early. Structure your deal to maximize your net sales proceeds, manage your risks, and protect against future liabilities. Consider estate planning and succession issues as well.
Not all interested parties are serious or qualified. Some may lack financing, strategic fit, or genuine intent to close a deal. Wasting time on unqualified buyers can delay the sale, expose sensitive information, and reduce momentum. It can also lead to frustration and missed opportunities.
Tip: Vet buyers thoroughly. Assess their financial capacity, industry experience, and strategic alignment. Avoid granting exclusivity until the buyer is fully qualified and committed.
A handshake deal, casual email, or verbal agreement before considering key issues can lead to confusion, misaligned expectations, and legal risk. Informal negotiations without a framework can result in misunderstandings or disputes that derail the transaction.
Tip: Use a professionally prepared term sheet (that is drafted by your lawyer with input from your accountant and tax advisor) to guide early discussions. It sets expectations, outlines key terms, and helps avoid costly missteps.
During negotiations, some owners become so focused on the sale that they neglect day-to-day operations. If performance drops, buyers may look to renegotiate the deal or even walk away. Buyers want to see consistent performance. A dip in revenue, customer retention, or employee morale during the sale process can reduce valuation or kill the deal.
Tip: Stay focused on running the business. Delegate deal-related tasks to advisors and maintain strong performance throughout the process. Consider incentivizing key staff to stay engaged. Also, make sure your business’s financial records are as accurate as possible; an undisclosed cost or liability can be costly if it is discovered by the buyer after the deal closes.
Buyers care about what happens after the deal. For buyers, the retention of key staff, retention of key customers, system compatibility, and work culture matter. Sellers often overlook this phase. Poor integration can lead to employee turnover, customer dissatisfaction, and operational disruption. It can also affect earn-out payments (where applicable) and post-sale obligations. If a business is sold and it underperforms after closing, a buyer may be tempted or provoked into a dispute.
Tip: Plan for a smooth transition. Offer support during integration, help retain key employees, and ensure systems and processes are compatible. Consider creating a transition roadmap.
The premature disclosure of a sale can unsettle employees, customers, and competitors. It can also expose sensitive information to unqualified buyers. What is more, leaks can damage morale, trigger customer exits, or give competitors an edge. They can also complicate negotiations if stakeholders react negatively.
Tip: Use well-drafted confidentiality or non-disclosure agreements with all parties or ensure that your term sheet includes binding clauses that properly ensure information disclosure (even the nature of the discussions) is kept strictly confidential. Limit internal awareness until the deal is secure and manage communications strategically. Have a crisis communication plan ready in case of leaks. A crisis communication plan is a strategy for communicating with stakeholders during a crisis, ensuring that accurate information is disseminated quickly to manage the situation effectively.
Even well-structured deals can fail due to financing issues, third party hurdles, or buyer concerns. Sellers often assume the deal will close and stop preparing for alternatives. If the deal collapses, you need to maintain business continuity and preserve value. A failed deal can also affect morale and market perception. Also, as a seller, you need to be prepared to walk away if you cannot close a deal on terms that are acceptable to you. It is common for sellers to mentally check-out before the deal is closed. If you are selling your business, and you are planning what you are going to do with your money before the deal closes, you are doing yourself a disservice and you are weakening your negotiating position.
Tip: Keep backup buyers engaged. Continue running the business as if the sale will not happen. Stay focused on closing the deal on terms and with risks you can accept.
Earn-outs and financing arrangements can be useful tools, but they are also common sources of post-sale conflict. Vague or poorly defined terms can lead to disputes over performance metrics, payment timing, or buyer obligations. Sellers may struggle to enforce terms or collect payments where they defer part of the purchase price and allow the buyer to pay the balance of the purchase price over time.
Tip: Use precise language in the agreement. Define metrics, timelines, reporting requirements, and dispute resolution mechanisms. Consider holding back a portion of the purchase price for 12 to 24 months after closing. If you are financing or deferring any portion of the purchase price, look at the transaction like a bank would, and ensure that you obtain enough security to protect your position and address the risks involved.
You may be asked to stay on for a transition period, provide consulting support, or agree to a non-compete. These obligations can affect your time, finances, and future ventures. Overcommitting or agreeing to vague terms can limit your freedom or expose you to liability. Non-competition clauses and stand-alone agreements are common in the sale of a business; by their nature, they restrict future opportunities of the seller. Note that the enforceability of non-competes depends on jurisdiction and requires legal review.
Tip: Negotiate realistic timelines and compensation. Ensure non-compete clauses are enforceable and reasonable in scope and duration. Clarify expectations for consulting or transition support.
Selling your business is a major life change. Many sellers overlook estate planning, reinvestment strategies, or retirement planning. Without a clear post-sale plan, sellers may face financial uncertainty, tax inefficiencies, or regret. The sale proceeds should support your long-term goals.
Tip: Work with your lawyer, accountant, and tax advisor to plan your post-sale life, whether it is retirement, philanthropy, or launching your next venture. Consider trusts, investment vehicles, and charitable giving strategies.
Final Thoughts
Selling your business is not just a transaction, it is a transition. By avoiding these common mistakes, you can help protect your legacy, maximize your return, and ensure a smooth and successful exit.
Disclaimer. This information is general and may not apply to your specific situation. Always consult a qualified lawyer and tax advisor before making business decisions.
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