Selling Your Business? The Risks SME Owners Often Overlook Before Completion

Selling a business is often viewed as the finishing line. For many SME owners, it represents years of work, risk, reinvestment and personal commitment finally being converted into value.

But the sale process itself can create risks that are easy to underestimate.

Most owners focus heavily on valuation, finding the right buyer and negotiating the headline price. Those are important, but they are only part of the picture. The detail behind the deal can have just as much impact on the final outcome, especially when due diligence, warranties, indemnities, deferred consideration and post-completion claims come into play.

For owners preparing to sell, the question is not only ‘what is my business worth?’ It is also ‘what could come back to affect me after the deal is signed?’

Completion does not always mean the end of risk

A common misconception is that once a sale completes, the seller can simply walk away. In practice, many business sales include ongoing obligations for the seller.

The buyer will usually expect a detailed set of warranties in the Sale and Purchase Agreement. These are statements about the condition of the business, its finances, contracts, employees, assets, liabilities, tax position and other key areas. If a warranty later proves to be inaccurate, the buyer may have grounds to bring a claim.

For SME owners, understanding their personal liability risk after selling a business is an important part of preparing for a cleaner exit. Even where a deal appears straightforward, the wording of the agreement, the accuracy of disclosures and the scope of warranties can all affect the seller’s position after completion.

As John Goodson, Client Director at Macbeths, explains: “Many owners assume the risk ends when the deal completes. In reality, the warranties and statements made during a sale can leave sellers exposed if issues are discovered later. That is why preparation, disclosure and specialist advice matter before terms are agreed.”

This is where owners can be caught out. Even if there is no intention to mislead, a historic issue, missing record or poorly disclosed problem can create friction after completion. The risk is often higher in owner-managed businesses, where key information may sit with a small number of people rather than in a formalised reporting structure.

A buyer does not want surprises after paying for a business. If they discover something that affects the value of what they have bought, they may look for a route to recover that loss.

The risks SME owners often overlook

Every transaction is different, but there are several areas where SME owners often underestimate their exposure.

1. Incomplete or rushed disclosure

Disclosure is one of the seller’s main protections during a business sale. If a known issue is properly disclosed to the buyer before completion, it can reduce the chance of that issue forming the basis of a later warranty claim.

The problem is that disclosure is often rushed. Owners may be balancing the transaction with the day-to-day running of the business, while also dealing with advisers, buyers, employees and confidentiality concerns.

Examples of issues that may need careful disclosure include:

• Customer disputes
• Supplier contract issues
• Late payments or bad debt
• Employment grievances
• Health and safety incidents
• Regulatory concerns
• Pending tax queries
• Lease or property issues
• Data protection breaches
• Software licensing gaps

None of these automatically prevents a sale, but failing to identify and disclose them clearly can create unnecessary risk.

2. Overconfidence in financial records

Many SME owners know their numbers well, but buyer due diligence will often go deeper than management accounts or year-end figures.

Buyers may test revenue quality, customer concentration, recurring income, margins, stock value, debtor recoverability, working capital and normalised profit. They may also look for unusual adjustments, related-party transactions or dependencies on the current owner.

If the buyer finds inconsistencies late in the process, the result may be a reduced valuation, delayed completion, a demand for additional warranties or a larger retention.

Strong financial preparation is not just about presenting the business well. It is about reducing the chance of the deal being renegotiated when momentum should be building.

3. Contract and customer risks

For many SMEs, value is tied closely to customer relationships and key contracts. That creates risk if those contracts are informal, poorly documented or dependent on the current owner.

Owners should pay particular attention to:

• Change-of-control clauses
• Termination rights
• Exclusivity provisions
• Personal guarantees
• Long-term pricing commitments
• Verbal or informal agreements
• Contracts due for renewal shortly after completion

A buyer may be concerned if significant revenue could disappear after the sale. Even where there is no immediate problem, unclear contract terms can weaken the seller’s position during negotiation.

4. Employment and people issues

People risks are often underestimated, especially in smaller businesses where HR processes may have developed informally over time.

Potential issues include unclear employment contracts, undocumented bonus arrangements, unresolved grievances, restrictive covenant concerns, holiday pay issues, contractor status questions and key-person dependency.

A buyer will want to understand whether the business can continue to operate effectively after the owner exits. If knowledge, client relationships or operational control sit too heavily with one person, the buyer may seek additional protections or reduce the price.

For this reason, succession planning and management structure can be just as important as financial performance.

5. Tax, VAT and historic liabilities

Tax and VAT issues can be particularly sensitive because they may relate to periods before the buyer owned the business. Buyers will often seek warranties or indemnities to protect themselves from historic liabilities.

This does not mean every business needs to have a perfect tax history before going to market. But it does mean sellers should understand any areas of uncertainty and take appropriate tax advice before they become buyer concerns.

Waiting until due diligence is underway can leave the seller with less control over the narrative.

6. Data, cyber and systems risk

Cyber and data protection risks are now part of mainstream transaction due diligence. Buyers may want to know how customer data is held, whether systems are secure, whether there have been historic breaches and whether software licences are valid and transferable.

For SMEs, this can be a weak spot. Systems may have been built gradually over many years, with old platforms, shared logins, informal processes or unclear ownership of digital assets.

A buyer does not just want the trading business. They want confidence that the infrastructure supporting it is stable, compliant and transferable.

7. Deferred consideration and earn-outs

Not every sale is paid entirely on completion. Some deals include deferred consideration, earn-outs or performance-based payments. These structures can help bridge a valuation gap, but they also create risk for the seller.

If future payments depend on performance after completion, the seller needs to understand how that performance will be measured and who controls the factors that influence it.

Common points of dispute include:

• Revenue recognition
• Cost allocation
• Management control
• Customer retention
• Integration decisions
• Accounting treatment
• Targets that are not clearly defined

A headline price can look attractive, but the certainty of payment matters just as much.

How owners can reduce risk before going to market

The strongest position is usually built before the business is formally marketed. Once a buyer is engaged and due diligence has started, the seller has less time and less control.

Owners considering a sale should take practical steps early.

Get the business sale-ready

This means organising financial records, contracts, policies, employee documentation, supplier agreements, leases, licences and corporate records before they are requested.

A clean data room can give buyers confidence and reduce delays. It also helps advisers identify issues before they become deal obstacles.

Review the likely warranties in advance

Owners should not wait until late in the process to think about warranties. Reviewing the likely warranty areas early can help identify where information is missing, where disclosures may be needed and where advice should be taken.

This can also prevent sellers from agreeing to statements they cannot properly verify.

Resolve obvious issues where possible

Some issues cannot be fixed before sale, but many can be improved.

For example, expired contracts can be renewed, informal employee arrangements can be documented, customer disputes can be resolved, software licences can be checked and governance records can be updated.

These actions may seem administrative, but they can support buyer confidence and reduce negotiation pressure.

Take advice early

A business sale is not the time to rely on assumptions. Legal, tax, accounting and corporate finance advice should be brought in early enough to shape the transaction, not just react to it.

For some transactions, insurance advice is also worth including in the conversation before terms are finalised. Alongside legal, tax and financial input, specialist mergers and acquisitions insurancecan help address certain risks connected to warranties, indemnities and post-completion claims. The suitability of this type of cover will depend on the structure of the deal, the size of the transaction and the specific risks being transferred, and any cover will be subject to policy terms, conditions and exclusions.

The important point is timing. Insurance should not be treated as a last-minute consideration once the deal is already advanced. If it may be relevant, it is better to explore it early.

The value of a cleaner sale process

A well-prepared sale process does not only reduce risk. It can also protect value.

Buyers are more likely to challenge price or seek additional protections when they find uncertainty. By contrast, a seller who can provide clear records, sensible disclosures and a well-organised due diligence process is usually in a stronger negotiating position.

This does not mean hiding weaknesses. It means understanding them, addressing them where possible and disclosing them properly where needed.

For SME owners, this can make the difference between a sale that proceeds smoothly and one that becomes slower, more expensive and more stressful than expected.

A final checklist for SME owners preparing to sell

Before going to market, owners should ask themselves:

• Are our financial records complete, consistent and easy to explain?
• Are key customer and supplier contracts properly documented?
• Do any contracts include change-of-control clauses?
• Are employee contracts, policies and records up to date?
• Are there any unresolved disputes, claims or complaints?
• Have we reviewed tax, VAT and historic liabilities?
• Are software, data and cyber risks properly understood?
• Could the buyer ask for deferred consideration, retention or escrow?
• Are we clear on what warranties we may be asked to give?
• Have we taken advice on how to reduce post-completion exposure?

Selling a business is one of the most important commercial decisions an owner can make. The most successful exits are rarely built at the negotiation table alone. They are built through preparation, clear records, early advice and a realistic understanding of where risk may sit after completion.

For owners thinking about a sale, the best time to address these issues is before the buyer starts asking difficult questions.