Business Sale Myths: Qualifications, LOI

There are many areas of the business world where myths and misconceptions can be quite damaging, and business sales are a great example. As a business seller looking to get the very best value and sale terms for your business, having proper information is vital - and this means steering clear of some of the major myths that have arisen over the years.

At Utah Business Consultants, as the premier experts in business exit planning, business valuation and all other elements of selling a business for clients around Salt Lake City and other parts of Utah, we've sadly heard just about every myth there is in our industry. We strive to ensure our clients have proper information at all times as they move through the sale process, including debunking any myths they may be mistakenly treating as fact. In this two-part blog series, we'll go over a few of the most common myths that are often repeated regarding business sales, plus the proper information to be aware of in each area.

Business Sale Myths

Myth #1: All Offering Parties Are Robust and Qualified

One of the first myths here is one that's often born of a desire to see things positively, which we can't fault any business owner for - but which can get you in trouble in some cases when selling your business. Some CEOs or business owners naturally assume that any buyer who has made an offer for their business is well-qualified, robust and able to follow through with the purchase. Unfortunately, this isn't the case - there are many prospective buyers who make offers without having the financial means or experience necessary to properly complete a transaction.

The result of falling for this myth can be disastrous: Not only might you lose time and effort by assuming you're dealing with a fully-qualified buyer, you could also have information shared that might be confidential or proprietary, causing issues for your business even if the deal falls through. The reality is that it pays to do proper due diligence on any potential buyers before agreeing to offers.

Instead of assuming all offering parties are fully qualified and robust, we recommend taking a few steps before even engaging with them:

  • Have a confidentiality agreement (or NDA) signed before any sensitive information is disclosed.
  • Ask for proof of funds or other financial documentation as part of the due diligence process.
  • Make sure to do your own research on the buyer, including their personal or public record and experience in similar transactions.

By following these steps, you can protect your business and ensure that only legitimate buyers are entering into negotiations.

Myth #2: When the LOI is Signed, The Sale is Complete

For those unaware, the acronym LOI is short for letter of intent - this is a document that's often used to outline the basic terms and conditions of a sale before moving into deeper negotiations. The myth here is that when an LOI is signed, the sale is basically complete and all parties can move onto other matters.

Unfortunately, this isn't how it works at all. While signing an LOI generally means progress is being made, it's far from a binding document and doesn't guarantee anything. There are still many potential roadblocks that could pop up during the due diligence process or in final negotiations for the sale, and the LOI itself can be renegotiated or even canceled at any time.

In part two of our series, we'll go over a few more common myths surrounding business sales and how to avoid falling for them. To learn more about us representing your business or any of our business valuation and exit planning services, speak to the experts at Utah Business Consultants today.

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