How to survive selling your business.

You've made the decision to sell your company. You've analyzed the market to confirm that the time is right for a transaction. You've thoroughly assessed your business to ensure that value will be maximized in a sale. Does that mean you can relax?

Not Yet. Plenty of pitfalls can crop up during the sale process. Here are 10 of the most common issues sellers face once they decide to pursue a transaction. Being prepared for these challenges increases the chances your deal will close and you will walk away satisfied.

Management Contracts and Non-Compete Agreements. Business owners often believe value is the only factor that drives the decision process. But owners are often subjected to contracts that commit them to certain actions after the transaction closes. What's required of the selling shareholders can be as important as the final dollar amount paid--maybe more. For example: How long are you willing to commit to stay with the business? What sort of non-compete agreement are you willing to sign and for how long? How much do you expect to get paid if you stay with the business? Make sure you address these points up front with any buyer to ensure that there are no misunderstandings about your post-transaction role.

Indemnity Issues. Another non-economic factor to consider with any M&A transaction is the indemnity provisions. Liabilities associated with indemnity provisions can survive as long as three years (or more) after the transaction is completed. The types of representations and warranties you make as a seller, and the potential liabilities you're exposed to after closing, are key considerations in choosing the right buyer. Some business owners may prefer a clean transaction with limited continued liability at a lower price vs. a higher-valued deal with a higher cap on liability and a longer tail.

Did We Forget to Tell You? As a seller, if you're running a sale process with multiple interested parties, make sure you give them the good news with the bad news. Don't hide key facts until you choose an exclusive buyer. Why? Because those issues are likely to come up sooner or later as part of the due diligence process, and if you wait, you'll wind up revealing them at your point of lowest leverage. Always disclose liabilities and other deal issues up front while the process is still competitive and you are able to be proactive about how you address them.

Beware the Retrade. Retrades are the curse of a great auction. No matter how competitive the process, at some point most buyers must choose a single party and allow them time to complete thorough due diligence. But after doing so, buyers often uncover items that cause them to come back with a reduction in overall terms. How you address issues that arise as part of the diligence process is critically important to minimizing any reduction in terms and mitigating your emotional response to a retrade.

The Process Takes a Toll. Most middle-market companies are thinly staffed and have less robust systems than larger companies. For those reasons, the sale process has a significant impact on the key employees responsible for providing information to involved parties. It's important to realize that getting through a sale process is taxing on critical employees and often affects the performance of the business during the process. Preparing up front will mitigate time spent during the sale process. As an example, if you don't have audited results and you are seriously considering selling your company, engage an accounting firm to provide an audit so you don't have to complete one while you are trying to sell.

It Always Takes Longer Than You Think. No matter what investment bankers tell you, a well-run, competitive M&A sale process lasts at least six months and on average seven to eight months. Think of it like getting engaged. You're committing to spending meaningful time preparing to get married. Rushing the engagement process only increases the chances of a less than satisfactory result.

Oops, I Changed My Mind. Before you decide on a buyer and provide exclusivity, be sure you understand exactly why they want to buy your business. If it's a strategic buyer, make sure you understand how your company fits within their organization. Do you have a champion within the firm who's senior enough in status to see the deal through? If it's a financial buyer, make sure you understand their criteria. Have they articulated to you why they like your company and why they want to do the deal? Knowing these facts gives you a solid foundation from which to move forward and mitigates the risk that a buyer walks away at the smallest sign of a problem.

Cash is King. In the middle market, structured securities--whether private stock, public stock or earn-outs are almost always valued at less than face. Rarely in the middle market do buyers offer stock that can be properly hedged or is unrestricted. Make sure you ask for cash from the start of the process. If you're lucky enough to find an acquirer who is able to offer stock that is acceptable to you and provides a tax advantage as a seller, you can negotiate the terms of the stock consideration in the context of a cash deal.

I've Fallen and I Can't Get the Money. Ask over and over again where the buyer is getting the money for the transaction. Talk to the buyer's banks and financing sources and require the buyer to provide documentation of financing. Don't settle for lines like, "Don't worry, my cousin has the money." Before you sign a purchase agreement, insist on a commitment letter that lays out the entire capital structure required to complete the deal.

The "Perfect" Deal Rarely Gets Done. What if a buyer tells you everything you want to hear? Their offer is on the high end, they'll provide the precise arrangement you want after closing, they can close in 30 days. Don't count on it. Deals are never win-win for one party and lose-lose for the other. Both sides should expect to compromise even in the most well run of auctions. If you receive the perfect offer, make sure you move forward with your eyes wide open, because the terms are likely to change.

J. Lindsey Alley is a Managing Director at Houlihan Lokey Howard & Zukin, an international investment bank headquartered in Century City. Mr. Alley specializes in advising clients on mergers and acquisitions, including both sellside and buyside transactions, and has significant experience raising growth or acquisition capital for middle-market companies.

He can be contacted at 310-553-8871 or via e-mail at [e-mail].