When selling your business, the due diligence process can be rough and exhausting. Hammering out the final sales agreement can be even more excruciating.
While your goal as a seller is to get the best deal possible (for you, your family, and employees), the buyer’s goal is to minimize the risk of investing in a privately held company.
During due diligence, the buyer will ask you to provide data and documents that confirm that you are accurately representing the strengths, weaknesses, and value of your business. Ideally, you will be prepared to deliver everything they want as soon as they ask for it.
But the hardest phase of selling the business is closing the deal – negotiating the slew of details that govern the transition and determine how much and when you will get paid.
And in the closing phase of the process, it’s equally important to know what to expect and prepare accordingly.
Speed matters when the buyer is ready to negotiate the terms of the final agreement. Both parties save a lot of money and resources when negotiations don’t drag on for months. Here are some ways to keep the process moving.
Don’t get emotional. Stay calm and think long term and logically. Avoid the temptation to walk away from the deal if the buyer proposes terms you deem insulting. Are you really willing to risk having the deal fall through for a detail that you are likely to forget about within 5 years?
A contract provision that raises your ire today is likely to be forgotten as soon as you receive your funds and exit the company.
Don’t allow too much time to elapse during the negotiations process. Your bargaining power can disappear in a week if the buyer gets distracted by potentially better opportunities. Or, the buyer might get cold feet about the deal if their financing is shaky or revenues at your company tank due the loss of a key customer or changes in the markets you serve.
Be decisive. Go into the negotiations process with clarity about what items matter most and which items allow room for compromise. Keep an open mind, though, because every buyer will have their own rationales for requesting certain terms. It will be a give-and-take process.
Make sure you understand every term in the agreement, including termination clauses. Buyers are at an information disadvantage when buying a privately held company. So they will include stipulations that enable them to terminate the deal if certain conditions aren’t met. For example, they may want to rescind or lower their offer if you haven’t been fully truthful about your company and its prospects for the future.
Hire an experienced, trustworthy advisor to coach you through the process. Buyers who have been through the M&A process multiple times will have a better understanding of common negotiating tactics than you do. Buyers have teams of experts and sophisticated project-management systems to get a deal across the finish line as quickly as possible.
If this will be the first time you have ever sold a business, you are likely to feel uncertain and may be slow to respond to requests and proposals.You may also fall for negotiating tactics that favor the buyer and put you at a disadvantage.
An experienced advisor will help you avoid those pitfalls and stay focused on the bigger picture.
You won’t always get everything you were hoping for out of the deal. But if it’s generally a good deal that will benefit you, your family, and your company’s employees, your advisors will explain why you should accept it.
Experienced M&A coaches have seen far too many deals fall apart before closing because the seller wasn’t fully prepared for what to expect.
Sellers who believe they are in charge of the process are mistaken. Connecting with a financially ready buyer who shares your belief in your company’s value can be a once-in-a-lifetime opportunity. Any actions you can take to prove that your company is worthy of their investment will help your cause.
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If you are thinking of selling your business, it’s never too soon to begin preparing. When the time is right, the buyer will have the cash, people, and backers to make an offer to buy a business.
Our goal at the LaManna Consulting Group is to help ready-to-exit owners prepare their companies to be the best choice in the market when the buyer is ready to make a move. Or Download our free guide, Code Red: 12 Seller Mistakes to help you get started on the process. Call me at 561-543-2323 to discuss your specific situation.