Negotiating to Sell Your Business: 7 Things You Must Do During M&A

 You’ve found the ideal purchaser for your company—or at least, you think you have. But the deal isn’t done until you’ve negotiated terms, and this process can change a lot about the sale. Most owners only sell one or two companies in their lifetime, which can make the process of selling your business feel overwhelming. That’s why it’s so important to work with a business broker as you navigate the M&A process. These business sale negotiation tips can help you navigate the process with ease, all while maximizing the value of the sale.

Educate Yourself

The party with the most information has a significant advantage at the negotiation table. Make sure you are the expert on your business, as well as the buyer’s needs and goals. By putting yourself in the buyer’s shoes, you position yourself to sell your business and negotiate a deal that will appeal to both parties.

Brush Up on Negotiation Tricks

Selling a business is very different from selling a product. You don’t need to build the same kind of loyalty or rapport with your deal partner as you would with a customer. Instead, you have to offer a compelling value proposition and a clear path to realizing this value, all while asking the buyer to cater to your needs. Brush up on negotiation strategies, and be sure you have a specific bottom line—not a vague, pie-in-the-sky dream about sale price.

Plan for the Sale Price Negotiation

Arriving at the final sale price is never a simple undertaking. As you debate the final price, consider factors such as business assets, real estate, debts, and liabilities, as well as intangibles like goodwill and brand loyalty. It’s important to use a clear and evidence-based methodology to value your business, rather than arbitrarily picking a number that sounds good. Your business broker can help you with determining value. You’ll also need to consider how to structure the sale, since deal structure may affect price and terms.

Price negotiation should also include compensation for anything the seller sacrifices, especially if the buyer requests a non-compete agreement.

Establish Contingencies

Contingencies are the terms of the deal—the conditions the parties must meet before the sale can happen. Some common contingencies include:

·  receipt by the seller of earnest money

·  a favorable financial audit

·  the buyer’s ability to qualify for a loan

·  transfer for the building lease, or other property leases

Exercise Covenants

Exercising certain covenants can offer additional value and reduce risk. Covenants are promises to undertake certain actions, or avoid certain activities. For example, there might be a covenant not to compete that prohibits the owner from entering a similar business within a certain geographic area.

Review Warranty Options

Warranties are additional promises the parties make. They are often based on promises about the company’s financial and legal health. For example, the seller might promise that their business records are accurate and complete, that they have not defaulted on any loans, and that all permits and licenses are valid and not in dispute. The specific warranties you make vary depending on your business model and industry.

Plan for the Transition

Transition planning should begin well before ownership transfer. Some topics to discuss include:

·  managing cultural differences

·  strategies for retaining key employees

·  managing liabilities that appear after closing

·  transferring contracts, and when to notify the other party to the contract of the sale

·  communicating the sale to key stakeholders, and establishing a clear narrative for the sale