Common Mistakes When 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. Avoid these mistakes and you’ll feel better about your deals after they’re done.

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
Making a stock-purchase transaction without understanding the benefits of an asset purchase
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 timeframe
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
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, tax, and insurance experts before agreeing to terms

Buying or selling a business is likely one of the most important transactions an entrepreneur faces. It is always best to seek professional help.

Don’t Forget to Review Your Insurance

Home office deductionsWhen was the last time you reviewed your insurance coverage?

An annual insurance review makes good financial sense.

 

Here are points to consider as you review your various insurance policies.

Bullet Point Health care. If you have an individual policy, investigate whether your employer, union or professional association offers a less expensive group policy.
Bullet Point Long-term care. Long-term care insurance may be advisable if you’re between the ages of 55 and 72 and you don’t have enough assets to fund long-term care.
Bullet Point Life. The protection you need depends on the number of people who rely on you for support. Whole, variable, and universal life policies combine insurance coverage with an investment future. If you want insurance only, consider term life.
Bullet Point Disability. Studies show that less than one in six Americans own enough disability insurance to provide a comfortable lifestyle during a two-year disability. Disability coverage is generally limited to 60 percent to 70 percent of salaried income. If you have adequate emergency funds, electing a longer waiting period for coverage to kick in will reduce your premiums.
Bullet Point Homeowners. With fluctuations in the real estate market, it’s possible that your home is now under- or over-insured. Coverage equal to the current replacement cost (excluding land), not its original cost, is advisable.
Bullet Point Auto. Liability insurance is a must, but consider dropping collision coverage if you can afford to repair or replace the vehicle on your own. Collision insurance is probably required if your car is financed or leased.
Bullet Point Umbrella liability. Personal liability coverage is included with most homeowner and auto policies. However, if you own substantial assets, umbrella coverage will provide additional protection at minimal cost.
Bullet Point Unnecessary insurance. Carefully examine policies with narrowly defined coverage (such as credit, travel, or cancer insurance). They often duplicate other coverage in policies you may already own.