Give yourself the best chance at the negotiating table using key tips and pointers. Be legally compliant and avoid last minute pitfalls in Due Diligence. Learn from the mistakes of others. More...
You need to have your negotiating hat on, and be confident that all your diligent preparatory work in reaching this stage makes your business worth the price you’re asking.
There’s plenty of psychology and a few key techniques involved in successful negotiations. ExitAdviser gives you tips on how to stay one step ahead of prospective buyers.
Your objective is to come up with a preferred buyer that’s prepared to meet your asking price. At this point, you’ll ask them to sign a Letter of Intent so that the Due Diligence process can start. Due Diligence is the most crucial point in the selling process. It’s in everyone's best interest for it to go smoothly.
The shape of final negotiations will depend on the Due Diligence findings. It’s here that either party can walk away from the deal if it doesn't suit them. Each will have a "bottom line" in mind. You’ll need to keep a clear head and be prepared to stand your ground, provided that you’ve got the facts to back up your position.
The Business Sale Agreement is an important document for sale closure. The initial signature, following checks during Due Diligence, confirms the buyer’s acceptance of the facts as previously presented, particularly in the Sales Memorandum.
Final sign-off will depend on a successful transition phase that ensures business as usual. In particular, the buyer will want to ensure that key staff stay in the business and remain motivated. Customer, supplier and partner communication and perceptions will also need to be carefully managed.
Whether you can immediately "ride off into the sunset" will depend on the final deal that's struck. It’s not uncommon for owners to be asked to stay on in some capacity for an agreed period of time before final payment is received.
There’s an important link between preparing draft legal documents, particularly the Letter of Intent, signed before Due Diligence, plus the subsequent Business Sale Agreement, and any previous information you have supplied to the buyer. It pays to have been truthful with all prospective buyers throughout the process because there will likely be consequences if you’re not.
Due Diligence is the buyer’s way of checking the facts. Any significant discrepancies found will badly impact your credibility, and could sink the deal entirely, putting you back to square one.
However, it doesn’t just end with the business sale closure. Your signature on the legal documents ties you to the facts as presented therein, even after the handover is complete. If something subsequently goes wrong, and it’s proven by the new owner that you had prior knowledge, or key facts were distorted, there’s likely to be legal redress against you.
You’ll probably have to sign a Non-Compete Agreement that prevents you from setting up a new rival to the sold business for an agreed period of time. The previously signed Non-Disclosure Agreement (NDA) must also be diligently honored by you until the document’s expiry date.
There’s likely to be jockeying for position, with prospective buyers seeking to learn as much detail as they can about your business. You, by contrast, will want to withhold commercially sensitive information until they’ve made a commitment to move forward with the sale in principle, by signing a Letter of Intent to trigger the Due Diligence process.
Have a plan for information disclosure. A well-prepared Sales Memorandum puts you in control by providing a focal point for discussions, the inevitable follow-up questions, and any subsequent negotiations.
If you plan to send the Sale Memorandum to prospects before an initial meeting, make sure they first return a signed copy of a Non-Disclosure Agreement (NDA). Assigning a unique number to each Sales Memorandum copy, printed in the footer of every page, will help demonstrate that you take the issue of confidentiality seriously.