Negotiation Strategies for Selling Your Business
Negotiation Strategies for Selling Your Business
Negotiating the sale of your business isn’t easy. The ability to negotiate is vital when entering into a merger and acquisition (M&A) transaction. However, it’s difficult to stay objective when parting with a business you’ve dedicated years of your life to. For many people, this is an emotional process. It’s important to enter M&A negotiations with an understanding of your priorities for your future and the future of your business. Keep the following strategies in mind and you are far more likely to get at better deal.
Remember: there are two sides to every deal
Every M&A negotiation is unique, but the scenario is typically the same: two parties come together to try and make an ideal arrangement for themselves. The buyer and the seller each have a different perception of the value of the business and the transfer of risk. The seller wants to maximize the value of the business and retain little risk. The buyer wants to pay a lower price and leave as much risk to the seller as possible. However, there are a few situations where the buyer may be willing to pay more. For example, if the seller’s long-term participation in growing the business is needed, a buyer may be willing to pay a little more and absorb more risk. Also, highly desired technology or patents may increase the buyer’s willingness to pay more.
Understand your needs and the buyer’s needs
Prepare for the sales process
Selling your business requires an adjustment and can be distracting for a business. It’s important that you effectively navigate the sales process while continuing to run the business. Allocate your time effectively. Ensure your management team is focused on improvement and growth. Empower them with a transition plan and keep an eye on financial performance, as potential buyers will be looking at that. In addition, work with your team to ensure that you’ve optimized controls, identified opportunities and developed plans for the future. A strong plan and consistent growth will optimize value and facilitate the transition for your employees and the buyer.
Know the strengths and weaknesses of your business
To get the most out of your negotiations, you need to know your business, its strengths and its weaknesses. If you’re diligent with preparation, you can effectively highlight the strengths and address the weaknesses when you’re negotiating with potential buyers. Evaluate your position and predict potential issues.
Know what your business is worth
Know yourself
To negotiate, you need to know your negotiating strengths and weaknesses. Play to your strengths and create a plan to mitigate your weaknesses. For example, if you become easily frustrated and you can feel yourself getting angry about a clause, take a short time to regroup and come back to it when you’ve clearly thought about the entire situation. Staying calm and focused gives you the clarity to understand each issue and its strategic implications. Preparation, strategy and coordination will determine your level of success.
It’s not all about the price
For many business owners, price might not be the most important factor in the negotiation. Take the time to evaluate and rank your priorities, so that you’re prepared to negotiate the right sale for you and your business. Before your enter negotiations, be sure you know what you want, where you’re willing to compromise and the areas where you plan to stay firm. It’s essential to have an ideal outcome in mind, but also understand that there will be trade-offs.
Reduce your risks
There are some actions you can take to reduce the negative impacts of sales negotiations. For one, be sure to prepare a non-disclosure agreement (NDA) in the early stages of the process. You don’t want to disclose sensitive business information to a potential buyer without a signed NDA. You should also ensure that books, files and records are complete and organized. A buyer will insist on seeing these records and, as a seller, you should be able to deliver them efficiently.
The letter of intent (LOI)
When a prospective purchaser decides to explore a possible transaction, the purchaser will issue a LOI. You need to review the LOI closely to ensure that it is clear and concise on the terms. You don’t want to sign the LOI only to find out later that certain verbal terms of the agreement were missing from the document. Be as clear as possible with the LOI and it will save time and possibly opportunities when it comes to the final purchase and sale agreement.
Hire professional help
Everything described above impacts an M&A deal and the complexity of negotiations. You need to work with professionals to maximize your results. With the right support, you will have the benefit of better business intelligence. Besides getting advice from a lawyer, an accountant and a tax advisor, you will want to work with an experienced M&A advisor, who can help you prepare for the sale, navigate the M&A process and communicate effectively with the buyer.
Tags: selling acquisition small business entrepreneurs coaching
About the author
Dione Mauric
A co-founder of Advantage Business Sales and Valuations, Dione Mauric has a unique ability to create successful outcomes for her clients - ...