/ 13 minutes
Sep 12, 2023
The DIY approach to selling a business offers you direct interaction with potential buyers, a chance to represent your business authentically, and a way to sidestep brokerage and marketplace listing fees.
Venturing into uncharted waters requires careful navigation. To equip you with information and insights, we spoke to OpenStore’s general counsel, Stephen Pelliccia, who has formerly worked on mergers, acquisitions, and other sophisticated transactions at major U.S. law firms — as well as at SoftBank.
Stephen emphasized the importance of fully understanding all legal agreements, coming prepared with a clear understanding of all relevant assets and liabilities, and carefully reviewing the scope of any proposed non-competition covenants.
“Many small business owners and sellers don’t read the agreements closely themselves or don’t understand what they’re reading. This leads to problems down the line where there has been a lack of agreement and expectations differ.
Unless a seller has previous M&A experience, we always suggest they have an attorney review on their behalf, even if just to clearly summarize the terms.”
We will explore the pros and cons of going the ‘for sale by owner’ (FSBO) route. The legal basics to consider, common mistakes to avoid, maintaining confidentiality, leveraging your connections, promoting your sale, and vetting buyers.
We also spoke to OpenStore’s top business pricing and valuation expert, Cindy Hao. She highlighted a common mistake of wasting time with non-serious buyers. Her insights underline the complexity of FSBO, but also shed light on the potential benefits:
No fees: avoid the commission that you would otherwise pay a broker or an online business marketplace.
Insider knowledge and a deep familiarity with your company’s strengths and limitations can be an advantage when selling.
Control the entire process: positioning, negotiations and decisions. Benefit from today’s open access to information (valuation methods, competitor sale prices, marketplaces).
Direct contact with buyers: understand market interest in your business. Take learnings and make modifications on how you market your business for sale. This can lead to better communication, understanding, and negotiating power.
Wasting valuable time on unqualified and unserious buyers: avoiding tire-kickers can be challenging and time-consuming.
Losing customers or revenue: owner’s time spent can interfere with business operations. In some cases, customers may consider going to competitors when they find out about the owner’s intent.
Legal hurdles require a certain level of expertise. Consult with an attorney (and/or accountant) for reassurance. Otherwise, you may invest significant time and energy to coordinate all resources needed for the sale.
Limited reach: your network of potential buyers may not be as extensive as that of a broker or marketplace.
Emotional attachment adds stress to negotiations and makes decision-making difficult.
When you are preparing to sell your business, it is crucial to understand what you are agreeing to. While this sounds obvious, Stephen explained that one of the most common issues is the failure to read or fully understand the purchase agreement.
This often leads to problems down the line when there are discrepancies between what was agreed upon and what was understood by either party. Engage with legal counsel both to negotiate the terms of the agreement on your behalf but also to clearly explain them to you.
At the heart of the sale of a business lie various agreements that legally bind the parties to the transaction. The key document will be either an asset purchase agreement (APA) or a stock purchase agreement (SPA), depending on the structure of the transaction.
This may be supplemented by several other ancillary documents such as:
bill of sale,
assignment and assumption agreement,
restrictive covenant agreement,
A business sale is not merely a transaction involving a name and brand. Being transparent about your assets and liabilities is not only a legal requirement but also critical for a smooth sale process.
Assets may include physical items like cash, equipment, property, machinery, inventory, accounts receivable, and intangible assets like patents, trademarks, contracts, or even special relationships with suppliers and clients.
Liabilities may encompass loans, debts (including credit card balances), leases, contractual obligations, and accounts payable.
Sellers frequently either don't disclose or aren't aware of all these items, which leads to misunderstandings later on.
Ensure that all assets are recorded in the name of the legal entity selling the business. If there are assets recorded in the name of a shareholder or a partner, this could potentially confuse the buyer and delay the process. For example, domain names and trademarks are often registered in the name of a shareholder and not the appropriate legal entity.
Non-compete agreements (NCAs) prevent sellers from starting a similar business within a certain time period and geographical area. They are commonly included in purchase agreements or standalone restrictive covenant agreements.
Understanding the scope of non-competes is crucial to avoid any legal troubles post-closing. Before signing, you should understand and clarify the industry in which you may not compete, the geographic scope and the length of time.
Don’t waste too much time with non-serious buyers. Not every question you receive needs to be answered. Before you get too deep into discussions, verify the buyer's sincerity and their financial capabilities — distinguishing serious buyers from the 'tire-kickers'.
Don’t transact with an untrustworthy buyer and don’t transfer assets too early. Only transfer ownership after formal legal agreements have been signed and funds are scheduled for the same day as asset transfer.
Secure proprietary information from competitors in disguise. This can inadvertently give away valuable strategic information. First, ensure that the interested party is who they say they are and then consider confidentiality (more on this later). Sometimes competitors may openly identify themselves, at other times they may even use a third party.
We always recommend that our counterparties have counsel that reviews and explains the asset purchase agreement to them — OpenStore’s attorney Stephen Pelliccia adds:
“The more complicated your business, the more likely you should engage with counsel earlier to assist you in the sale process.”
Legal counsel can provide critical insights, spot potential pitfalls and ensure the agreement's terms are fair and beneficial to you. Engage with legal counsel early in the process to assist you, especially during the negotiation of the term sheet. This can save you delays and expenses later on.
It can also be beneficial to hire external professionals who specialize in managing financial statements, customer lists, due diligence, and other matters. Attorneys and financial professionals can help ensure that your contracts and financials are in order.
When selling your business yourself, it's essential to follow a systematic approach to ensure a smooth transition.
Here's a quick overview of the key steps:
Prepare your business for sale: this may include maintaining stable performance, cleaning up financial records, or resolving outstanding issues such as debt or overdue invoices.
Conduct a business valuation: here’s a guide for e-commerce businesses.
Promote your business’ FSBO: use your network, social media, online marketplaces, and targeted advertising to reach potential buyers.
Screen potential buyers: avoid tire-kickers, ill-intentioned competitors, and put NDAs in place.
Negotiate the sale: price, terms, and transition period.
Full disclosure: ensure that all key assets and liabilities are disclosed, attributed correctly.
Understand the central agreement in your business sale: APA or SPA.
Consult a lawyer early, especially on the APA/SPA, and if complex.
Understand the scope of the non-compete.
Finalize the sale with all parties signing the necessary documents, and ensure the funds are transferred.
Revealing sensitive information about your business could potentially harm its competitive standing.
Transparency is key to any business sale, but the appropriate time to reveal confidential information depends on several factors, including the buyer's identity and the data's uniqueness.
Follow these guidelines:
NDA: ensure that prospective buyers sign a non-disclosure agreement before you reveal any significant business information. This agreement is designed to keep information out of the public domain and ensure that the information is used strictly for evaluating the business sale.
Competitors: research their acquisition history and reputation and trust your business acumen. The decision to disclose sensitive information here boils down to the level of trust between the two parties.
Data type: consider what you share and at what stage. Patents, customer lists, and other unique business details may require more careful handling than general financial metrics.
Disclosure should be a gradual process that aligns with the buyer's commitment level. Start with high-level information and gradually provide more detail as the buyer shows serious interest and proceeds further through the buying process.
Consider what you divulge in your first contact with a potential buyer or a pool of buyers.
Selling your small business independently has become an accessible and cost-effective strategy. Using your personal connections, leveraging online platforms, and exercising due diligence with potential buyers are critical components of a successful business sale.
There is also a creative side to this process. As a starting point: consider how you present your business to your target buyer. Lead with a hook — consider it a catchy heading — and then craft a concise narrative. If possible, include a key visual aspect. Compile these combinations in a list of different variations for different audiences, and pick a couple of the best.
Selling your business to someone you know — such as a family member, employee, or business peer — can simplify the process. The right buyer may be just a phone call or LinkedIn introduction away.
This direct approach can eliminate the need for middlemen like brokers and potentially minimize transaction fees and the other disadvantages of business brokers. However, it also comes with its unique challenges that must be carefully navigated:
Limited pool of potential buyers.
Absence of intermediaries means less support through the process.
Inherent familiarity can often blur the line between business and personal, leading to potential disputes and misunderstandings.
Handle this situation with care and follow these additional guidelines:
Keep them at arm's length: since you’re selling to someone familiar, ensure the process is conducted professionally and follows the arm’s length principle (ALP), common in contract law. Both parties should behave as though they're independent and on an equal footing. Don't let personal relationships affect the terms of the sale. This also ensures that the deal is negotiated fairly and can help protect the personal relationship in the first place.
Communicate clearly: it's particularly important when selling to a known entity as assumptions based on prior interactions can lead to misunderstandings. Make sure all expectations are clearly outlined and understood by both parties. Consider sending summaries of your discussions via email.
Put everything in writing: regardless of the level of trust between the parties, it's crucial to formalize the terms of the deal. This includes any promises, understandings, and expectations that have been discussed, in addition to business assets, liabilities, NDA, and non-compete. Both parties should fully understand the agreement and consult with counsel early in the process to avoid discrepancies down the line.
Conduct a proper evaluation, both ways: selling to someone you know doesn't mean you should sell your business short. Your business is the result of your hard work, and you want to make sure you get what it's worth. And just like in any other transaction, it's important to ensure the buyer is financially capable to meet the demands of the sale.
Even when dealing with familiar parties, you may choose to use escrow services for a secure transaction if you are not exchanging assets and funds the same day. Treating the transaction as if it were with an unrelated party helps protect personal relationships and avoid potential conflicts.
Numerous platforms like can help you connect with entrepreneurs and business enthusiasts in your search for buyers:
and for some businesses, even their email mailing list.
In some cases, your best customers or subscribers may include potential buyers or people who can refer you to them.
Important: consider the impact to your business if announcing the sale publicly or directly to customers.
Vetting buyers applies twofold if you’re not dealing with known parties.
Part of selling your business by yourself involves sifting through both serious buyers and 'tire-kickers'. Until a potential buyer is vetted and a formal agreement is nearing, avoid sharing critical proprietary information.
Request proof of funds: it's fair to ask individual buyers to demonstrate they have the funds necessary to complete the purchase.
Be wary of buyers who unnecessarily drag out the process or demonstrate a lack of readiness to transact.
Inquire about their portfolio: ask potential buyers about their prior acquisition history and portfolio size. This information can give you insights into their experience level and capacity to support your business.
Research the buyer's background: do your own due diligence about their general reputation in the industry by reaching out to past employers, colleagues, co-founders, sellers/buyers, or other connections.
For example, at OpenStore, we rely on our case studies and team’s reputation to establish trust with Shopify store owners looking to sell their e-commerce business to us. So far, we have successfully purchased 40+ Shopify stores with happy reviews.
Running a business while attempting to sell it can be a crucial act.
You never know how long the sale process might take.
Even while you are courting potential buyers, your business needs to continue functioning at its highest level. This means you should ensure you are not missing any replenishment purchase orders just because you are anticipating a sale. You should avoid forgoing profits from stock outs while you still own the business.
You also demonstrate to prospective buyers that your business can sustain its operations even during transitional periods. If you have an e-commerce business that relies on paid marketing channels for customer acquisition, OpenStore’s top pricing and diligence expert, Cindy, recommends:
“Keep your ad accounts warm: maintain spend levels, refresh creatives, and actively manage your ads. Maintain your usual cadence of product drops and other retention campaigns like email newsletters. Make sure your sales growth does not slow due to lack of attention.”
Selling a business is a significant milestone, but your responsibilities as a seller may not end at the transfer of ownership. It's crucial to understand the post-sale implications to protect yourself from unexpected liabilities or financial drawbacks.
Legal implications post-sale: if the business declines under the new owner, as long as there's no earnout clause in your agreement, you typically won't have to worry about any liability. This is due to the fact that, post-sale, the management of the business becomes the new owner's responsibility.
Liability protection after the transfer of business: it's important to structure the transaction in a way that ensures you are not responsible for the vendor agreements once the business is transferred. If it's an asset sale, ensure you assign all of your contracts to the buyer to avoid any potential liabilities after closing.
Financial implications of deal structures: for example, if the deal structure involves several payments over time, the timing of your payout could impact your taxable income in each year.
Dealing with business brokers: if you are considering approaching a broker, review the brokerage agreement closely before you sign.
In general, ensure the tail period (during which the broker is entitled to a fee on any sale) is narrow, and if there are any potential buyers you've already been in contact with, make sure to exclude them from the brokerage agreement.
Benefits of selling to OpenStore instead: a fast and fair diligence process that saves founders from weeks of clunky back-and-forth emails, broker fees, and costly legal fees. Once accepted, we seek to close quickly, giving founders certainty.
OpenStore's expert- and technology-driven process has made it easy for 40+ founders to sell their stores:
It took 10 minutes for Max Medroso to gather the required details for OpenStore’s process. After selling, he enjoyed a smooth transition of operations.
Ben Davenport was referred to OpenStore by a friend and valued the process of analyzing his business — it showed him we were serious about growing his brand.
Firas Balaffou faced uncertainties and broker fees so he opted for OpenStore with an uncomplicated process. All he had to do was connect his Shopify and Facebook accounts, and sync with OpenStore on P&L metrics. He accepted the all-cash offer of $380,000 for his brand, without any fees.
Find out what your Shopify store is worth
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