Selling a business or product can be a rewarding step in your career, but it’s essential to take precautions to protect your interests throughout the process. For example, conducting thorough due diligence on potential buyers helps minimize risks, and involving legal and financial experts can highlight any overlooked risks or obligations.
Below, Forbes Finance Council members share steps like these you can take to confidently move forward when selling your product or business. By implementing these safeguards, you can help secure your financial and professional interests during this pivotal time.
1. Have Strong Contractual Sales Agreements
One way to safeguard will be to have a strong contractual sales agreement in place. The agreement should outline, at minimum, terms of sale, payment structure, liabilities, warranties and any post-sale responsibilities. Having a strong contract in place will protect the interests of the business, ensure clarity between parties and minimize the risk of disputes after the transactions. – Shivali Kukreja , NIB NZ
2. Know FTC Rules
To safeguard yourself when selling your business, you must know FTC rules of promotional language. It’s important to promote your services or product, but you must do so within acceptable language so as to not be penalized for unethical promotion. – Justin Brock, Bobby Brock Insurance
3. Set Realistic Payouts
Set a realistic payout of the purchase price over the company’s reasonably calculated future cashflows. Further, through the due diligence process, work to understand the buyer’s plan for continuance during the payout period and their ability to achieve it. – Perry D’Alessio, D’Alessio Tocci & Pell, LLP
4. Assign Skilled Project Managers
You need a sherpa. Just as a sherpa expertly navigates treacherous mountain terrain, a skilled project manager guides you through the complex process of selling your business. By having a dedicated person or team managing each aspect—such as structuring and due diligence—you can avoid costly missteps and stay focused on running your business. – Brian Lasher, CIG Capital Advisors
5. Practice Honest Communication
As corny as it sounds, honest communication about your product, service or business instills credibility and confidence in consumers and is a powerful marketing tool. In my opinion, this is the best way to safeguard yourself. – Gale Simons-Poole, BHG Financial
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6. Clearly Understand The Terms And Conditions
When selling your business or products, understand the terms and conditions of sale—including the valuation, consideration, intellectual property, royalty and controls, liabilities and indemnification against future losses. You may engage experts on the nuances and terms to ensure there is no unintended exposure. – Oluwatoyin Aralepo, Africa Finance & Strategy Hub
7. Use Comprehensive Non-Disclosure Agreements
Utilize a comprehensive non-disclosure agreement (NDA). This will help you to protect sensitive information during negotiations, ensuring that intellectual property, trade secrets and financial data remain confidential throughout the selling process. – Sumeet Grover, Alliant
8. Have Robust Business Insurance Coverage
Make sure you have robust business insurance coverage to avoid any liabilities. Being authentic, having integrity and owning your craft also creates a measure of safeguarding yourself. Do not sell or produce what you do not personally believe in. – Nike Ajao, OneBarrow Corporation
9. Sign Agreements Protecting Against Improper Uses
There are several agreements that you can sign when selling your company to go with your product when selling it. These can protect and indemnify you against improper use of the product. For businesses, you can sign non-disclosure agreements and non-circumvention agreements, amongst others. – Richard Okon, St Nicholas Hospital
10. Plan For The Worst Case Scenario
Put strategic thought into the worst-case scenario that could happen after acquisition. Would it be that your team isn’t protected and gets laid off? Would your mission be completely revamped and damage the integrity of the company? We love to focus on all the positives, but in the end, you have to live with what’s in the contract—so make sure it’s protecting what you love. – Dr. Jackie Meyer, Meyer Tax, The Concierge CPA Coach
11. Set Performance-Based Earnouts
One way to safeguard yourself when selling your business or product is to structure the sale with performance-based earnouts. This ensures that a portion of the payment depends on the future success of the business, reducing risk and aligning both parties’ interests during the transition period. – Frankie DiAntonio, Lexington Capital Holdings
12. Build Comprehensive Sales Agreements
Make sure that you have a very comprehensive sales agreement. This helps to protect both parties by laying out expectations. It would also be wise to involve a legal professional. – Bob Chitrathorn, Wealth Planning By Bob Chitrathorn of Simplified Wealth Management
13. Use Well-Drafted Legal Contracts
One effective way to safeguard yourself when selling your business or product is to use well-drafted, comprehensive contracts. These legal agreements should clearly outline all terms and conditions of the sale, including payment terms, transfer of ownership, warranties and any post-sale obligations or restrictions, helping to protect your interests and minimize potential disputes. – Joseph Lustberg, Upwise Capital
14. Invest In Expert Advisors
One must secure oneself against potential future liabilities associated with the sale of the business. Investing money upfront on getting expert advice before the sale is important. – Jehangir Raja, JR Dallas Wealth Management
15. Establish Clear Transition Strategies
Create a transition strategy that clarifies both parties’ duties and responsibilities throughout the handover, outlining knowledge transfer methods and training for the new owner. Setting explicit expectations ensures operational stability and protects the company’s brand, lowering the possibility of conflicts and liabilities after the sale. – Neil Anders, Trusted Rate, Inc.
16. Conduct Your Due Diligence
Conduct thorough due diligence on potential buyers. Understand their financial stability, track record and intentions. Additionally, protect your intellectual property and confidential information through well-drafted non-disclosure agreements (NDAs) to ensure your assets are secure during negotiations. – Marlon Sanchez, Skyway Pacific Research
17. Create Legally Binding Contracts
One important way to safeguard yourself when selling your business or product is to create a well-drafted, legally binding contract. A comprehensive contract can protect both parties involved in the transaction and minimize potential disputes or misunderstandings. – JD Morris, RHC 21 LLC (a SPE Fund) with family of Special Purpose Entities (SPE or SPV)
18. Obtain Professional Business Valuations
To safeguard yourself when selling your business or product, obtain a professional business valuation for an objective assessment of its worth based on financial performance and market conditions. Additionally, consider structuring the sale through a trust. This can protect your assets, minimize personal liability and provide tax benefits, helping you navigate the sale with confidence. – Gomathy Periathiruvadi, Alita Systems
19. Leverage Deferred Sales Trusts
One way to safeguard yourself when selling your business is by leveraging a Deferred Sales Trust (DST). This strategy defers capital gains taxes by placing the sale proceeds in a trust, allowing you to reinvest or receive structured payouts over time. It protects your wealth, maximizes cash flow and offers flexibility in managing tax liabilities post-sale. – Andre Pennington, Pennington Law
20. Establish Solid Legal Agreements Up Front
The key to protecting yourself when selling your business or products is having solid legal agreements in place. Attorney-drafted contracts ensure that your intellectual property, revenue expectations and legal protections are clearly outlined. It is much easier to have strong agreements in place upfront than try and amend them later and to ensure that you are protected if something goes awry. – Trixy Castro, TRX Capital
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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