NEGOTIATIONS WITH BUYERS
Before commencing negotiations on the sale of your business, it is important to be completely clear on the outcome you seek. The most common primary objectives our clients seek from the sale of their businesses are:-
- Financial - to maximise the amount of money returned from the sale.
- Timing – many of our clients are looking for a swift no nonsense sale to allow them to meet a specific timescale or deadline (typical reasons for this include emigration, illness, other commitments and lifestyle or financial issues.) In some circumstances a seller may forgo the highest bid in favour of another party able to proceed more quickly or with a proven track record of no nonsense business acquisition.
- Emotional/personal – To find a suitable successor who will look after staff and clients.
Negotiations can be conducted in a number of ways. Some sellers enjoy the thrill of the chase during negotiations, others are more comfortable using the services of a 3rd party agent to allow them to concentrate on financial and commercial objectivity and to avoid making overly emotional decisions.
As a seller, your negotiating style and position will have to take into account the level of demand and interest in your business that your chosen marketing medium generates, as well as how quickly you need to sell.
Clearly you can afford to negotiate on your terms if there are many interested parties and you are not under any great time pressure. Conversely if there is only one prospective buyer and you need to move quickly then you are much more likely to have to make some concessions on your ideal price and terms.
When negotiating the sale of your business, it is important to keep the following key issues in mind:-
- Ability of the purchaser to proceed – it is important to establish at an early stage of negotiations that any prospective buyer will actually be able to deliver on any offer. In particular you need to be sure that they can raise the necessary money for the purchase. Virtually all buyers will claim that “money is not an issue” but it is crucial that you see some evidence of cash funds, or a letter from a lender offering the necessary funding.
- Deposits - is the purchaser prepared to show intent by means of a deposit if you accept their offer.
- Clear “Heads of terms” – when considering offers, to avoid future pitfalls, it is important to make sure that there is a clear understanding between yourself and the prospective purchaser in terms of:-
- How and when the monies are to be paid? Is the purchaser offering full cash on completion of the deal or is there to be any element of deferred payment e.g. £200,000 to be paid on completion of the deal and a further £50,000 3 months later.
- What timescale is the purchaser proposing to complete on their offer? Are you prepared to grant them exclusivity during this period (e.g. will you cease speaking to other buyers).
- How will stock be valued and paid for?
- Will the purchaser be buying the shares of your business or the assets only?
- In an asset sale, will the purchaser be buying the assets in their own name or in the name of a limited company?
- Which party will pay for legal costs (including landlord’s agents and solicitor's costs for leasehold properties with 3rd party landlords?
This is a complex area and this list of considerations if far from exhaustive, but it is designed to give sellers a feel for the elements of their sale which they need to consider carefully before accepting an offer.
Failure to tie down the basic details of a business sale at an early stage can lead to significant wasted time, wasted money (solicitor's and accountant’s fees), stress, angst between buyer and seller and in many cases may necessitate a renegotiation or remarketing of the business to alternative buyers. If in doubt, seek professional advice. Proactively investing in appropriate advice at an early stage should save you money over the course of your sale.
