You must protect your assets as you prepare to sell your business. With careful planning and attention to detail, you can guard against risk during your business sale. Here are 10 tips to help you safeguard your intellectual and tangible assets throughout the sales process.
1. Vet Your Buyer
Individuals may show interest in your business without a true intent to purchase it. Rather, they may ask questions to learn about your company, its products, and its services in the hopes of profiting from it right away. These can even be times when individuals use information you provide about your business to steal your ideas.
To avoid any legal issues such as intellectual property theft, learn as much as you can about the party that wants to buy your business. Find out why a buyer is considering your company and what he or she wants to do with it. In addition, ask a buyer if he or she has sufficient funds to purchase your business.
Perform an in-depth background check of a buyer, too. Use Facebook, LinkedIn, and other social media tools during your background check. Also, request a copy of a buyer's CV or resume and get in touch with their professional references.
If you need help with a background check, you can outsource the task. A third-party background screening company can look at a buyer's criminal past, driving records, and more. It can then offer insights to help you determine if the buyer is a viable candidate to purchase your business.
2. Figure Out What a Buyer Wants Out of Your Business
A buyer may have interest in certain aspects of your business. If you understand what a buyer wants, you can map out the sales process accordingly. Plus, you can assign an appropriate value to intellectual and tangible assets a buyer wants and maximize your profits.
Conduct an independent valuation of your company. This lets you get expert insights into different aspects of your company and their respective worth. From here, you can establish a fair value for your company. You can set a fair asking price for your business and its intellectual and tangible assets as well.
3. Request a Proof of Funds (POF) Letter
A POF letter verifies a buyer has adequate liquid assets at their disposal. The letter confirms the buyer can cover the costs of purchasing your business. Furthermore, a POF letter limits the risk associated with your transaction.
Ask a buyer to provide a POF letter that includes information about the institution where a buyer holds their funds. This information must be reviewed to confirm its authenticity. Do not provide a buyer with access to your business's intellectual and tangible assets until the information in their POF letter is reviewed and confirmed to be accurate.
4. Get a Down Payment
You may commit significant time, energy, and resources to move forward with your business sale. As such, you should be compensated for your efforts. With a down payment, you can rest assured that a buyer is serious about purchasing your company. You can also take solace in the fact that the buyer will comply with your requests to keep any intellectual and tangible business assets secure until the deal is finalized.
Require a buyer to provide a down payment that ranges anywhere between 10-30% of your business’s total purchase price. Provide clear terms that indicate when the buyer must submit the remaining payment. If a buyer makes a down payment but cannot pay the remainder, you can keep the initial compensation. At this point, you can restart the process of selling your business.
Moreover, you can ask a buyer for a full upfront payment. In this scenario, the buyer can submit their payment. From here, you and the buyer can finalize the transaction and provide him or her with complete access to your company's intellectual and tangible assets.
5. Avoid Providing Buyers with Administrative Access to Your Company's Systems
A buyer may want to see your company's inner workings. At this time, he or she may push for administrative access to your business’s systems. The access may be temporary or permanent. Regardless, it exposes your company to a wide range of security dangers.
By providing a buyer with admin access, you open the door to cyberattacks. There is no telling if a buyer will access your company's systems on their own or provide others with the ability to view them. And if anyone who accesses your business's systems inadvertently downloads a malicious file or clicks on a suspicious link, a cyberattack can occur. Meanwhile, this can lead to a costly and time-intensive data breach that endangers your business, its employees, and its customers.
Do not allow a buyer to have admin access to your company's systems. If a buyer wants to view these systems, use a virtual private network (VPN). That way, you can remotely share your screen with a buyer. This gives a buyer a glimpse into your business systems without putting them in danger.
6. Be Honest About Your Business and Its Intellectual and Tangible Assets
You want a fast and profitable business sale. To achieve your goal, you may be tempted to stretch the truth about your company and its intellectual and tangible assets. Yet, doing so can be problematic for several reasons.
First, you can face legal ramifications if you are not forthright with a buyer about your business. In this instance, you may be subject to litigation due to false business claims or statements. There is a risk that your business sale may fall through, too.
Work with a lawyer to provide a buyer with accurate information about your company and its intellectual and tangible assets. Your attorney can provide tips, recommendations, and insights to help you guard against legal issues during the sales cycle. He or she can establish a sales contract that enables you and your buyer to accomplish your respective goals.
7. Use Secure E-Signature Technologies
A buyer may prefer to sign business sale documents digitally. You can quickly and easily share digital documents with a buyer. Then, the buyer can review and sign these documents at their convenience.
Online signatures are great options to streamline a business sale. But, it is important to use e-signature software that complies with globally recognized electronic signature regulation bodies. This helps protect your business and its intellectual and tangible assets are protected if you use electronic signatures during the sales process.
If you're selling a US-based business, select e-sign software developed per ESIGN and UETA. Or, if you're selling an EU-based company, leverage e-sign software that follows EU Directive 1999/93/EC.
Stay up to date on electronic signature regulations as well. By doing so, you can leverage e-sign technologies to securely and seamlessly complete your business sale.
8. Safeguard Your Customers' Personal Data
Your business may collect personal data from your customers. And you need to account for how this information will remain secure as you sell your company.
If necessary, request consent from customers to transfer their data to a buyer. If customers provide documentation to verify their consent, you can provide the buyer with this information upon completion of your sale. Conversely, if customers do not consent, you cannot provide this information to the buyer.
Oftentimes, it helps to conduct a data protection framework audit before you close your business sale. The audit can provide details about how customer data has been collected and organized, along with consent records.
9. Protect Against Indemnification Claims
Indemnification clauses are key components in a business sales agreement. They state a seller will reimburse a buyer for the loss of a liability. If your sales agreement includes one or more indemnification clauses, you may be held financially responsible if the buyer experiences future losses or damages.
Limit the number of indemnification clauses in your sales pact. If a buyer requests an indemnification clause, verify the terms and conditions associated are simple to understand. This eliminates the "grey area" that can otherwise lead to an indemnification claim.
Clarify what is covered in any indemnification clauses. Be clear about the types of losses and what situations in which a buyer can cite an indemnification clause and pursue financial compensation from the seller. Make indemnification clauses specific, and both you and the buyer know when they can be utilized.
10. Seek Out Expert Help
Your business sale can be a long, arduous process. Although you may try to complete this process on your own, roadblocks can crop up along the way. If left unaddressed, these issues can slow down your sale or prevent it from happening. They can also put your company and its intellectual and tangible assets at risk.
Get help as you move through the sales process. Typically, it helps to meet with an appraiser who can initially review your business and its assets and provide a valuation. You can then set an asking price that accounts for all your company has to offer.
Along with an appraiser, you may want to partner with a broker. This professional can protect the confidentiality of your business sale. A broker can identify prospective buyers and determine their eligibility to buy your business. He or she can keep you up to date on offers to buy your company and help you navigate all stages of the sales process.
An accountant can be a difference-maker as you try to sell your business, too. He or she can share relevant business paperwork with potential buyers. At the same time, an accountant can minimize the risk of sharing sensitive business information.
The Bottom Line on Protecting Your Assets As You Prepare to Sell Your Business
You have committed significant time, energy, and resources to building a successful business. If you are ready to sell, you need to plan ahead. In doing so, you can safeguard your assets throughout the sales process.
Selling a business can be difficult. Your company has lots of assets, and you want to protect them as best as you can. If you prepare for the sales process, you can limit the risk of problems at each stage. You can also maximize the return from your sale and ensure your assets are fully protected at all times.
As you get ready to sell your business, review your assets. Determine what assets you have and how to protect them. Next, you can craft a strategy to safeguard your assets as you navigate the sales process.
Finally, be persistent as you sell your business. You may encounter challenges along the way, but do everything in your power to protect your company and its intellectual and tangible assets. If you stay the course, you can keep your assets safe. Perhaps best of all, you can achieve your desired result from your business sale.