Hopefully, you've been thinking a lot about your priorities, about what you really want to achieve by selling your business. At this point we'll go into some more detail about the various terms you might consider as part of the deal.
Terms drive price, and you should arrive at a general agreement with the buyer about the major terms before you start talking dollars. You may even include a short list of your absolute requirements as part of your selling memorandum, so that buyers who can't meet your minimum terms won't use up your precious time.
Some of the terms you should be considering are:
- What, exactly, are you selling? Which assets will go with the company, and which (if any) are you going to keep? Are your key contracts transferable to a buyer? If your business is incorporated, will you sell stock or assets?
- How much of the purchase price do you need to receive at closing? Will you consider an installment sale? An earnout?
- To what extent will you remain involved in the company, after the sale?
- How will tax considerations affect your net proceeds from the sale?
Once you've got a feel for what terms the buyer will accept and what you can live with, you can begin to negotiate the price.
General advice about negotiating terms. Some business advisors say that you should let your broker or intermediary do all your negotiating for you that you should not talk directly with the buyer until almost everything has been settled. A broker may be better able to remain objective without giving too much away. Other business advisors say you are the best representative of your company and of your own expectations from the sale, and buyers will respond better to direct contact with you.
We think that you'll have to use your judgment about how you want to handle this. Some business owners are superb salespeople, and could probably close the deal better than their business broker. On the other hand, some are not good "people persons" and are better off leaving the negotiations to a pro. The size and price range of your business may also play a part in your decision, since a broker will be more willing to spend a lot of time doing shuttle diplomacy if he knows he'll be making $50,000 or more on the sale. On smaller deals, the broker may do little more than to locate potential buyers and introduce them to you.
We do advise you to arrive at some general agreement with the buyer either directly, or though your broker before getting your lawyer and tax advisor involved. Getting lawyers juiced up about a deal too soon is usually a mistake, since they tend to get caught up in the tiniest details rather quickly. And since you're paying these professionals by the hour, it's often best to make sure you can reach a basic agreement with the buyer before the legal fees clock starts ticking. You can also save money by getting some of the initial dancing around out of the way before calling in the professionals.
However, we do recommend that you hold some preliminary, general conversations with your attorney, accountant, and/or tax expert even before any buyers turn up, just to be sure that you understand your options. We're just suggesting that in the usual case of a fairly straightforward sale of stock or assets, you may not have to involve the professionals in negotiations with a particular buyer until you're fairly sure that the deal will fly. Just make sure the buyer understands that anything you agree on is subject to your attorney's later review and approval. After the letter of intent is signed, there will be plenty of time for your respective attorneys to hash out the details.