When selling your business, a critical lens can help you see flaws in your company, as well as potential issues with a buyer. The right M&A firm is critical to selling your company, but there’s no substitute for doing some investigative work of your own. Asking yourself these 13 questions before selling can help ensure a successful sale, and reduce the risk of falling into the most common traps that ensnare once-promising sales.

  1. How do you intend to market the company? This is critical, and a good M&A firm should help you come up with a marketing plan tailored to your business, while still protecting confidentiality.
  2. Is there a letter of intent? This non-binding letter outlines the basic terms of the transaction, and can help guide the M&A process as it unfolds. You can add certain binding clauses to help protect both parties, such as a nondisclosure agreement or no-shop clause.
  3. Are you prepared for due diligence? Due diligence will make or break your sale. You must be prepared to promptly respond to buyer requests with updated and reliable financial records. Critically, these records must support—rather than contradict—the assertions you have made to the buyer.
  4. What representations and warranties will you include? These are basically promises you make to the buyer about the transaction—such as that there are no pending lawsuits. This section must be clear, specific, and well written.
  5. How will indemnification work? Sellers normally agree to indemnify buyers against certain harms, especially if they do not reveal important information. For example, you might indemnify buyers from responsibility for any legal liabilities incurred when you were at the helm.
  6. What role will a cap and basket play? A cap limits the amount of damages an indemnifying party must pay, while a basket is a certain threshold damages must reach before an indemnifying party must pay them. This can protect you from trivial damages, as well as from major lawsuits.
  7. Will there be an offset? An offset allows the buyer to offset against the amount it owes on a seller’s note if a claim against which the seller has indemnified arises.
  8. What are anti-sandbagging  and sandbagging? Sellers usually want anti-sandbagging provisions. Sandbagging provisions allow buyers to seek damages against a buyer regardless of their knowledge of certain relevant facts, while anti-sandbagging provisions protect against such practices.
  9. How will the buyer pay? The specific way the buyer pays can determine how much you take at closing, and whether you must meet any additional requirements to earn the full purchase price.
  10. How will seller financing work? Most deals now involve some from of seller financing. Determine how seller financing will be structured, and make sure to conduct reasonable due diligence eon the buyer before committing to any type of seller financing.
  11. How will the purchase price be allocated in the sale? This has important tax ramifications. Ask your team about the role of various deal structures.
  12. Will the deal include restrictive covenants? Most deals include covenants not to compete in a certain time frame or geographic region.
  13. What will be the seller’s obligation to the business after closing? When the business transfers ownership, will the seller remain on as a consultant? If so, what benefits and salary will you enjoy? And for how long must you remain?