Negotiating the Sale of Your Business
Most business owners have had their fair share of practice in negotiation, between managing and finalizing contracts for vendors, clients, and even contractors and employees. But when it comes to negotiating the sale of your business, it’s best to take a step back and consider where you may need to brush up on your skills.
In every sale, there are two main parties: the seller (business owner) and the buyer. Unsurprisingly, these two sides have very different goals in regards to the sale, with the purchaser seeking to acquire the company at a low price with favorable buyer terms, and the owner wishing to maximize the buyout price with favorable seller terms. But at the end of the day both the buyer and the seller want a deal to be made – and that’s where negotiation matters.
Before signing off on a sale, here’s what you should consider to leverage the best terms.
Research, Research, Research
Do your homework –before a deal is on the table. Industry multiples of EBITDA, balance sheets, working capital and negotiation counterparts are all important aspects to review and understand. The more prepared you are walking into the negotiation, the higher the chances you will have of coming out on top.
Understand the Other Party
You also need to be familiar with the buyer’s interests. Educate yourself on both the negotiator and the company they represent in order to increase your bargaining power. Are they a strategic acquirer with synergies to realize or are they a financial buyer solely using your business as a platform?
Timing is Key
In some cases, business owners need to sell their company as quickly as possible. A distressed sale like this can lead to increased expenses and liabilities, as well as a lower market value. If you have a say in choosing the time of your sale, make the most of it. Plan ahead and list your business when your business and the market are both the strongest. Let’s be honest, most buyers will not accept the fact that a 70+ year old owner is looking for the right private equity group to do a majority recapitalization with because they want to stay on for another decade…
Price is Not Everything
While price is a key aspect in negotiating a sale, it is far from the only consideration. Terms within the agreement hold just as much importance. Both the seller and buyer should discuss these matters in order to keep the sale moving forward.
Know Your Walk-Away Number
While the end goal of the negotiation process is to make a sale, this isn’t always the right move for your business. Although walking away empty-handed may seem like the last thing you want, in some cases it is necessary. If anything, having a “walk-away” number can help you as a seller say no to an uncomfortable deal.
While all of these are important factors to consider, there are others that may be relevant given your situation. Our team at Symmetrical can ease your uncertainties and provide insight into the negotiation processes. Contact us to learn more.