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Haugen Moeckel & Bossart

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2 Minutes Read

5 Ways to Avoid Litigation When You Sell a Business

Selling a business involves substantial amounts of money and a wide range of issues, including warranties, representations, disclosures, and contractual obligations. Consequently, there are many opportunities for litigation to arise. Not only is litigation highly unpleasant and disruptive to your lifestyle, but it is also very expensive - even if you win. Additionally, as a small business owner, your company most likely represents a significant portion of your net worth. That's why it's crucial not to let litigation wash it away when the time comes to convert your years of hard work into cash.


At Haugen, Moeckel & Bossart, we have 50 years of proven, cost-effective litigation services in North Dakota and Minnesota. Therefore, if you plan on selling your business, rest assured that our team will assist you with competent and affordable representation.  Below you will also find five strategies to follow when selling your business that can help minimize litigation issues.


1. Honesty is the best insurance policy. Tell the truth about your business. Do not attempt to hide any problems or issues that, if left undisclosed, might be the basis for future litigation. Rest assured that the cost of disclosure in a transaction is minimal compared to the cost of litigation for non-disclosure.


2. Develop a confidential business review. This high-quality, comprehensive document describes your business and its background. This document clearly discloses any negative issues that are involved in the company. Not only will disclosure reduce litigation risks, but it will also add to your credibility with potential buyers and save you time by eliminating those unwilling to accept your business's realities.


3. Accurately communicate historical financial results. Do so in a manner that demonstrates the earning power of your business. Ideally, this information will be presented in a summarized format that recasts your discretionary and certain other expenses to show EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).


4. Require your buyer to go through extensive due diligence. Due diligence is when a buyer investigates the information you have provided about your business. The written due diligence materials should be incorporated into the final legal documents to minimize your litigation risks.


5. Assemble a strong team of experienced professionals. Your accountant and attorney will play critical roles, and their expertise will reduce litigation risks. You may also benefit from the assistance of a trained intermediary, broker, or merger and acquisition firm that sells privately owned businesses. 


Ultimately, the goal is a successful, worry-free transition. Take the time to recognize and act on your many opportunities to minimize your litigation risks and reap the benefits later.

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