Four Explicit Don�ts When Pursuing a Business Exit

There are innumerable mistakes which can be made when it comes time to sell a business. Investors and entrepreneurs alike know the risks inherent in starting, managing, and even selling organically-grown and venture-backed companies. Perhaps the biggest risk comes in attempting to sell the most illiquid assets tied up in the company. Because fewer companies are sold than most people think, it is wise to avoid some of the most glaringly obvious blunders many exiting entrepreneurs make when it comes time to sell their companies.

Setting the Stage: Why Exit Mistakes Are So Costly

Unlike operational missteps that can often be corrected over subsequent quarters, errors made during a business sale can be permanent. A mispriced deal, a botched employee communication, or a premature disclosure of proprietary information can each, independently, eliminate years of value creation. The owner who has spent decades building a company deserves a disciplined, process-driven exit — not a reactive one. Reviewing key concepts in evaluating exit strategies before launching a formal process is a practical first step.

Don’t Let the Industry Know You’re For Sale

The simple reason for not being overly boisterous about the fact that the company is on the market: if the company is listed for a long period of time, the price of the company can substantially erode. In addition, if the industry knows the company is for sale, it could also be a trigger event for competitors and customers alike. The competition could find ways to block and thwart the sale, or they could start letting customers know you’re on the market. And if the customers know you’re on the market, the chance of them heading to the competition substantially increases.

Controlling deal confidentiality is one of the primary reasons sellers use a structured sell-side preparation process, which keeps marketing materials targeted and counterparties under NDA before any substantive information is shared.

Don’t Fail to Communicate Completely with Employees

Employees are seldom not worried about job security. Often in a business transition, many employees will understandably be given notice by new owners and management. As the business sales process unwinds, employees should not be left out of the loop — at least when it comes to communicating deal specifics as they relate to their jobs. If employees are left out, they could become disenfranchised and disinterested in the company, especially if they feel threatened that their jobs are on the line. Revenues and costs could spiral downward or upward (as the case may be), and the company could ultimately look less impressive to investors who may be looking to purchase.

The short of it: communicate openly to employees and try to make their transition as smooth as possible. Retain-bonus structures and employment agreements can be powerful tools here — see key considerations around employment agreements for a practitioner’s perspective on how these are structured in acquisition contexts.

Don’t Disclose Too Much Proprietary Information Prior to the Sale

Due diligence requires a slew of questions, but if you’re not under terms with a potential acquirer, it is often unwise to disclose too much information. Many companies are simply purchased for “goodwill” — an intangible built up over years of work. If goodwill is the only thing keeping your customers and your nicely-crafted business model from thief-like competitors swooping in and stealing your general business plan, then you need to protect yourself from every possible threat.

Unless you’re legally protected, it is highly unwise to give away too much proprietary information prior to the sale. Best practice is to release information in stages: general financials and a summary under NDA first, with deeper operational and IP disclosure gated behind a signed letter of intent. A well-organized virtual data room workflow can enforce this staged disclosure automatically, giving sellers control over what buyers see and when.

Don’t Let Individual Compensation Get in the Way of Shareholder and Company Goals

Company size helps to determine whether or not this even matters. If the company is a fully-owned S-corp and all business income flows onto the owner’s personal tax return, then conflict between individual compensation and shareholder goals at the time of the company sale is not going to be an issue. Inconsistencies in shareholder/management goals often occur when management is directly involved in merger negotiations. If this is the case, managers must learn to take the higher road and do what is best for all stakeholders and not just their own pocketbooks after the deal is closed.

Building a Framework Around These Principles

These four don’ts are not abstract principles — they map directly to real deal failures. Practitioners who have worked through multiple exit processes tend to institutionalize guardrails: formal confidentiality protocols, employee communication playbooks, staged data-room access, and independent compensation committees. Owners who are earlier in their planning should also consider the key groups to consult before selling, because assembling the right advisors early tends to reduce the frequency and severity of these mistakes.

The number of issues which could arise during the business sales process are nearly innumerable and can change swiftly from deal to deal. Understanding the big “no-nos” will be helpful in at least avoiding the proverbial sore-thumbs of selling a company. If you are actively preparing for a transition, starting a structured transaction preparation process is a practical way to work through these considerations before they become problems.

Frequently Asked Questions

How early should a business owner start preparing for an exit?

Most advisors recommend beginning exit preparation two to four years before a target transaction date. That runway allows time to clean up financials, resolve legal issues, address employee agreements, and structure the business in a way that maximizes transferable value. Owners who wait until they are ready to sell immediately often leave significant value on the table.

What is the right way to handle employee disclosure during a sale process?

There is no universal answer, but a staged communication approach is generally advisable. Key management who are integral to the deal should be informed early and often brought into the process as participants. Broader employee communication is usually delayed until a deal is signed or nearly closed, at which point clear, factual information about job continuity and transition plans helps retain the workforce through close.

How do sellers protect proprietary information without slowing down diligence?

The standard toolkit includes a mutual NDA at first contact, a teaser that describes the business without identifying it, a full CIM released only after NDA execution, and a virtual data room that tracks who accessed what documents. Many sell-side advisors also sequence data-room access so that detailed IP and customer information is released only after a letter of intent is in hand.