Tips for Negotiating the Sale of Your Business

There are several steps to follow when negotiating the sale of your business, and when you do, and do them in a logical order, you will be rewarded with a smoother and more efficient sale process.

First things first.

Have you identified your personal needs in the selling of your business?  This is a good place to start when negotiating its sale.  Think about your needs while jogging or as a writing exercise.  Regardless of how you do it, write them down; you’ll be glad you did later.  You’ll want to discuss them with your potential buyer in conjunction with his or her needs prior to bringing up terms or price.  Terms dictate price so be sure to iron out agreeable terms of purchase with your buyer before price is negotiated.  Your price will fluctuate according to how comfortable or uncomfortable the terms make you.

Next step: Letter of Intent

The purpose of the Letter of Intent is to write in stone the agreed upon terms and price.  All other details will be dealt with by the lawyers.  On the note of professional deal-makers, ask any mediator and they will affirm that your best bet for successful negotiating is to remain calm and level headed, while keeping your goal in mind and treating the other party with respect.  Another way in which you can show your professionalism and help to keep the other party engaged is to respond in a timely manner to any inquiries or proposals sent by the prospective buyer.

Finalizing the deal

Either you prepare to close the sale by generating a purchase agreement, or you determine that you don’t have a good match and move on.  It is often recommended that the buyer’s attorney prepare the purchase agreement which is said to save the seller money.  However, not surprisingly, the agreement is then often written to favor the buyer.  In the end, the seller can save more money and strife by having her or his own attorney prepare the purchase agreement.

If the negotiating goes south, or drags on beyond what feels worth it to you, know that leaving that opportunity for greener fields is certainly acceptable.  Be firm on your personal requirements, terms, and price, and know at point you will walk away.  Putting this in your notes with your needs and sticking to it can save you time and agony in the process of selling your business.  Another option that can save countless dollars and hours is the service of Business brokers.  It is important to feel confident about the process you are embarking on, and if you don’t, these qualified professionals can come to the rescue.

Determining the Value of a Small Business

It is generally a challenge to practice detachment from your business in order to evaluate it objectively, but this is exactly what is recommended in order to determine its market value. Without using this approach, most people looking to sell their businesses fall into the trap of overpricing them which can have the undesired effect of inviting a tedious level of scrutiny on the part of the buyer, as well as the business being on the market for much longer than they’d like.

If objectivity is beyond your grasp, you may want to look into hiring an outside professional. A business financial analyst can help you figure the realistic worth of your business and end saving you many times more than the upfront investment of hiring them. Another tool available to the small business owner to determine the realistic market value for their business for sale is the business profitability calculator. It is essentially a research tool meant to be used by the business community to provide small business buyers and sellers with an inside view of the potential deal.

Once the asking price has been established and you’re ready to put your business on the market, there are a few other things you can do to increase your professional image and decrease the change of squirming in the face of scrutiny. You can expect a potential buyer to want to see a business plan, balance sheets, profit and loss statements, and a list of your clientele. Having an agreement prepared and reviewed by an attorney for both buyer and seller to sign will put you in position to seal the deal as soon as an interested buyer is ready. It will show that you are organized and prepared and give the buyer one less reason to delay the decision to buy your business.

Businesses Bought and Sold

As with anything that is bought or sold, purchasing a business is based largely on perceived value.  It must be a good fit in the life of the new owner in ways that will almost always go beyond financial earnings.  Of course, it has to measure up to the standards set by lenders, but it also must satisfy lifestyle demands of the buyer, because as we know, and he or she knows, the purchase of a business will dramatically change the life of the owner.

As a seller, you may or may not choose to disclose your personal reasons to sell your business.  Again, as with selling anything, listing all the woes you’ve experienced with it will not help any prospective buyer to see the value.  Your lifestyle is likely very different from that of the buyer, and the parts that didn’t work for you might be just what makes it a perfect fit for him or her.

As they say, attitude is everything.  Focus on the positives in your business.  If asked, you may want to simply focus on the excitement of the new shining opportunity available to you and after all, one business at a time is enough, isn’t it?

The price your business commands is important, and as a seller, the higher the price the better for you, but beware of your personal attachment to it.  After creating it from the ground up, or just pouring yourself into it, and feeling it is a part of who you are, sellers are in danger of inflating the price they think is reasonable.  Think of your favorite hoodie sweatshirt from high school.  The edges were frayed, the hood was ripping, and the color was faded, but the value you perceived in it was still great – after all, it had been through a lot with you!  Hopefully your business is in better shape than your sweatshirt, but you see the point.  In either case, when it’s time to part ways it’s you and only you who calls that shot, just as it is the buyer, and the buyer alone who ultimately makes the decision to buy. 

Best of luck to both of you!