Selling Your Business? Watch for These Red Flags from Buyers

If you’re thinking about selling your business, you already know how important it is to find the right buyer. The last thing you want is to waste time with someone who isn’t serious, isn’t financially prepared, or who could derail the deal at the last minute. 

Selling a business takes time and effort, and every hour spent on the wrong buyer is time you could be using to run your company or close a solid deal. Recognizing these red flags, and working with an experienced business lawyer, will ensure that you find the right buyer the first time around.

But First, How Do You Prepare To Sell Your Business?

Before you even start talking to buyers, you need to get your business in order. That means reviewing your finances, organizing your documents, and making sure everything is legally sound. Selling a business isn’t just about the right price—it’s about presenting a strong, trustworthy operation that buyers can confidently step into.

Start by assembling your team:

• A business lawyer helps you draft and review agreements and makes sure you’re not exposing yourself to unnecessary risk. They’ll also guide you through things like buyer confidentiality, letters of intent (LOIs), and the final purchase agreement.
  
• An accountant will help you understand the tax implications of the sale, clean up your books, and prepare the financial documents buyers will want to see. They can also advise on how best to structure the sale (e.g., asset sale vs. share sale) to maximize your after-tax return.
  

Having the right professionals by your side from the beginning helps you avoid costly mistakes, reduces stress, and speeds up the overall process.

Four Red Flags to Watch For When Talking to Potential Buyers

1. They Don’t Know Your Industry (or What Is Involved With Selling A Business)

A buyer might be excited at first but quickly back out once they realize what it takes to run your business—especially if they’ve never worked in your industry before. Also, first-time buyers may not understand what’s involved in buying a business, including all the legal, financial, and operational steps. This can lead to delays, or worse, a broken deal. 

A business lawyer can help you assess their background and include protections in the letter of intent (LOI), such as limits on exclusive negotiating periods (a “no-shop” clause), to keep you from missing out on better opportunities.

2. They Won’t Share Financial Information

If a buyer refuses to provide details about their financial situation, take that as a warning sign. You need to know they have the money—or can get the financing—to actually follow through with the purchase.

Some buyers claim they want to keep their information private. That’s understandable to a point, but transparency is critical for due diligence. Ask for a pre-qualification letter from a lender or financing partner to confirm their buying power. A business lawyer can help you set clear expectations for financial disclosures and protect your sensitive company information with a confidentiality agreement.

3. You’re Not Talking to the Right Person

If you’re speaking with someone at a company who’s not a key decision-maker—like the CEO, CFO, or owner—it can slow things down and create confusion. In serious deals, the top players are involved early and regularly.

If you’re always getting passed around or can’t get answers, that may signal the company isn’t as serious as they seem. Your lawyer can help identify the right people to speak with and draft communication protocols that keep the deal moving in the right direction.

4. They’re Too Far Away to Be Realistic

Location matters. Most buyers looking at small or mid-sized businesses don’t want to uproot their lives to take over a business in another city or country unless it’s a large enough deal to justify it.

If the buyer is far away, ask how they plan to manage remotely or if they’re going to relocate closer to the business. If their answers seem vague, they may not be serious. A business lawyer can help include location-based requirements or contingencies in the purchase agreement to avoid wasting time.

When Selling Your Business, Trust Your Gut and Talk To The Experienced Business Lawyers At Hukam Law From The Start

When your business is on the market for sale, you need to stay focused on keeping operations steady. A dip in performance during the sale process can turn off good buyers and reduce your business’s value. That’s why it’s important to work with the right legal professional who can help you spot red flags early on in the process and do the necessary due diligence required.

At Hukam Law, our lawyers have a strong background in business sales in Simcoe County and the GTA, and can help you close the deal with confidence. Contact us at 705-915-0884 or send an email to info@hukamlaw.ca today to get started.

***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.