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Tips for negotiating your business sale

On Behalf of | Mar 18, 2024 | Business Law |

The sale of a business involves quite a bit of negotiating. Although you might be ready to sell your business, finding the right buyer and negotiating the right deal can be complex and take time.

Prepare yourself by gathering as much information on your business as you can before you start negotiating. You might be tempted to skip this step since it is your business and you may believe no one knows your business better than you.

However, a good buyer will do their own research and could discover issues you are unaware of. It is important to be able to have an answer to all issues that a buyer could bring up.

Knowing how to negotiate

Educate yourself on good negotiation strategies. Some of these include knowing what your goals are ahead of time, knowing the best way to start negotiations and having effective closing strategies.

The selling price is often the most challenging part of negotiations in a business sale. The selling price is often more than a simple number.

Your ultimate sale price will likely be based on various pieces that are all considered to arrive at the sale price.

For example, the value of your business properties and land and your business assets are one piece of what will make up your final selling price.

Decide if you are going to use appraisals to determine asset value or fair market value. Although a different method could work better for your business, generally having outside information, such as an appraisal by a neutral party, helps you justify your selling price.

Contingencies and covenants

You must also negotiate contingencies, which are events that must happen before the sale can go through.

Some common contingencies include the buyer’s approval from a lender, a positive review of your business financial records and the buyer receiving escrow funds.

In addition to contingencies, your sale contract could contain covenants, which are promises that you and the buyer make to one another.

A “business as usual” covenant is often included. This is a legally binding promise you make to keep your business running as usual during the sale process.

This usually means you must continue to keep the same business hours, products and services and provide the same level of service to your clients or customers. You may be forbidden from making any new or different agreements or purchasing new products or services.

The transition process

Finally, you must address the transition process. This includes what happens to your current employees and how you will contact your clients, suppliers and vendors to tell them about the new ownership. You must develop a plan for any work-in-progress throughout the sale process.

Remember that the purchase and sale of a business is a complicated transaction. Be patient and do not make impulsive decisions because you just want to get the deal over with.

Review decisions with a trusted advisor to make sure you are not overlooking anything or agreeing to any terms that may be unfair or even illegal to you.