Selling Your Company: Key Points to Get Right

A handful of decisions have an outsized effect on whether a company sale closes and what the seller receives: resolving legal and environmental issues before going to market, hiring the right transaction attorney, understanding what lowers value, setting the key terms of the letter of intent early, and choosing which priorities matter most. Each is covered below.

Clean up before going to market

Settle litigation and environmental issues first. Pending lawsuits and unresolved environmental questions give buyers a reason to discount the price, delay closing, or walk away. Resolve them, or at least define them clearly, before the business is listed.

Protect intellectual property. Confirm that patents, trademarks, copyrights, and domain names are properly registered and owned by the business.

Raise the company's visibility. Trade show presence, an active public relations effort, and a credible reputation in the industry all add to perceived value. These efforts work best when they start well before a sale.

Understand what lowers value

Be prepared for buyers to offer less when a company has:

• Thin management. A business that depends on the owner for key relationships and decisions carries more risk for a buyer.
• Customer concentration. When a few customers account for a large share of revenue, losing one after closing would hurt the new owner.
• Limited geographic reach. A business that serves one local market is generally viewed as riskier than one with broader distribution.

Some of these can be improved before a sale. Others can be addressed through deal structure. For more on how buyers weigh these factors, see How Buyers Value a Business.

Build the right advisory team

Hire an experienced transaction attorney. The buyer will have one. Your attorney should have specific experience with business sales.

Look for a dealmaker. A good attorney protects your interests without trying to win every point. Negotiations involve trade-offs, and an attorney who treats every issue as non-negotiable can cost you the deal.

Involve your tax advisor early. Your entity type (C corporation, S corporation, LLC, or other) and the structure of the deal affect both how buyers approach the transaction and how much you keep. See Asset Sale or Stock Sale: What the Structure Changes.

Set your terms before the letter of intent

When a buyer signals they are ready to submit a letter of intent, tell them upfront which items you expect it to address. These typically include:

• Price and payment terms
• Whether the transaction is an asset purchase or a stock purchase
• Which assets and liabilities the buyer will assume
• Which contracts and warranties will transfer
• The timeline for due diligence and closing

Defining these early reduces the chance of surprises later and gives the seller more leverage than negotiating them after exclusivity is granted.

Stay flexible

Sellers who refuse to move on any point often watch buyers walk away. Decide in advance which terms are essential and which have room to bend.

Speed, confidentiality, and value: choose your priorities

A company sale often involves objectives that pull against each other. Contacting more buyers improves the chance of the best price but increases the risk of a confidentiality breach. Moving quickly limits exposure but narrows the field. Most sellers need to decide which two of the three matter most. See Keeping a Business Sale Confidential.

Don't let the listing go stale

A business that sits on the market for a long time loses appeal. Buyers start to assume something is wrong. Realistic pricing and preparation at the start keep momentum on the seller's side.

If you are preparing to sell a company in Southern California, a confidential valuation from BusinessQuest Brokers is a practical place to begin. Request a valuation.

Frequently asked questions

What should a letter of intent include when selling a company?

Price and terms, whether it is an asset or stock sale, the assets and liabilities being assumed, which contracts transfer, and the timeline for due diligence and closing.

What reduces the value of a company to buyers?

Dependence on the owner, lack of management depth, reliance on a small number of customers, and limited geographic reach are common reasons buyers offer less.

Why does a business lose appeal the longer it is on the market?

Buyers notice how long a business has been listed. An extended listing raises questions about price or hidden problems, which weakens the seller's negotiating position.