Selling your business is an exciting yet emotional time. You’re parting with something you’ve poured countless hours and dollars into and you’re anticipating reaping significant financial gain. This, of course, is contingent on the final terms of the sale agreement.
It’s likely both you and the buyer have the intent of getting the best possible deal and that probably means different things for each of you, so you should expect some back-and-forth before a final agreement is reached. However, unless you’ve sold a business before, it’s likely you may feel unprepared to negotiate this type of transaction.
Here are seven aspects to consider when negotiating the sale of your business:
1. Selling Price
The selling price is typically one of the hardest things for the buyer and seller to agree on. Keep in mind that this number is inclusive of many different values such as the price of business assets, the purchase of stock owned by the seller, any business-owned real estate investments, compensation for a non-compete agreement, and more. It’s also important to determine how the payout will be structured.
You’ll probably have to make a few concessions when negotiating the terms. These concessions should always be reciprocated by the buyer so leverage them strategically and make sure you’re getting something of equal value in return.
3. Your Walk Away Number
The value you place on your business may be very different than the value a seller sees. Make sure you’re ready to prove this value but also be prepared to lower it based on the buyer’s proof points. Prior to negotiations, determine the lowest possible price you’d be willing to sell for. If the buyer isn’t meeting this threshold, then you can confidently walk away from the deal.
4. Restrictive Covenants
Restrictive covenants are promises that the buyer and seller make to each other. These covenants can cover anything from the seller abiding by a non-compete agreement to the buyer promising to continue to do business a certain way.
A completed sale may be contingent on several different things outlined by the buyer and the seller. These contingencies can include the buyer’s full review of all business records provided by the seller, receipt of escrow from the buyer or acceptable financing for the buyer.
6. Buyer’s Intent
It’s important to know what your buyer’s true motivation is for making this deal. By understanding the buyer’s intent, you’ll be able to increase your bargaining power.
One thing the buyer and seller can agree on is getting the deal done in a timely manner. If you’re taking too long to respond to the buyer’s requests, he or she may move on to another opportunity. Conversely, you may also be strapped for time and willing to take less for a quick sale. Be upfront about timelines so both parties know what to expect.
The Bottom Line
Preparing to negotiate the sale of your business is not easy. To help ease the burden of this transaction, consider factors like contingencies, concessions, timelines, and price beforehand. Being prepared will make you a more confident negotiator and help move the sale along quickly and seamlessly.