Our good friend Roger Neu once agains shares some of his wisdom on selling your business. You need to understand the importance of negotiations, and the proper time to present and negotiate terms. It is always better to do so at the very beginning before you get into all the due diligence and the stress of verifying the companies net worth. You don’t want to negotiate at the end where every one is stressed about getting a deal, any deal, done. Check out his great insights and advice on selling your business below.
Selling your business –
THE FACTS OF LIFE AND MERGERS AND ACQUISITIONS
Ignoring the “facts” is the best way to take the life out of a business sale. When an owner plays “negotiating footsie” with a pursuing buyer it usually leads to some bad consequences for the owner.
A common scenario is that an owner gets an unsolicited offer for their business at a number that is “maybe too good to be true.” The owner’s inclination is to try to push the number a little higher while maintaining a “buddy-buddy” relationship with the potential buyer. What the owner does not realize is that a “number” means very little without identifying and negotiating other key terms and conditions (like what form will the payment take and when do you get paid).
Owners are afraid they may scare the buyer away if they start talking about deal terms. Unfortunately, a buyer paying $10M to $150M for a middle market company is probably several steps ahead of a one-time seller; and while the owner may think they are “playing” the buyer, it is almost always the other way around. Sellers can easily get suckered into providing financial and operating information and spending countless hours over weeks and months only to find out that the “terms and conditions” that are addressed later make the initial offer (number) look very unattractive.
Serious buyers both respect and appreciate sellers who know that key terms need to be addressed at the outset. This step provides a complete road map for the drafting of deal documents and the completion of the transaction. I will ask owners: “If you don’t address the terms and conditions in the beginning, when do you plan to address them?” Owners do not have a good answer to that question. What happens is that the buyer and seller have basically bought into an ongoing battle for the next two to three months over issues that should have been resolved at the outset (when they were actually “buddy-buddy”). Those deals crater, get retraded, or, at best, get done with a lot of hard feelings.
Sellers may not even be aware of 90+ percent of the issues that need to be addressed. When properly apprised of those issues and their significance, most sellers readily get on board. They want to make sure that the buyer is not just blowing smoke, but is seriously interested in purchasing the business on terms and conditions that are fair and reasonable to both parties. Identifying, agreeing upon and documenting key terms and conditions at the beginning allow the buyer and seller to build a strong relationship and that is what will lead to a successful closing. No one likes surprises!