The primary focus of any business owner when it comes to selling a company they own tends to be the asking price. After all, as a business owner, you want to get the highest possible value for a business that you are deeply invested in, both financially and emotionally. When it comes to making a deal though, asking price is only part of the negotiating process.
Maintaining confidentiality during a business sale protects you, your sensitive information and your employees. Preventing the sale from becoming public knowledge also helps maintain its health, as customers will be less wary, and competitors will not be able to take advantage by purging your clientele. List your business for sale in places where only qualified buyers are given sensitive data about the business, such as financial information, and avoid public marketplaces. This is one concession a seller should not make. Hiring a business broker also helps in this area because brokers are experienced with confidential sales and have a proven vetting process before releasing revealing information about a business.
Selling the Business Quickly
There are times when an owner may be willing to take less, in order to sell quickly. It is not uncommon for a business to remain on the market for a few years before selling. Sellers should keep this in mind when they are presented with an offer from a prospective buyer. Passing up a reasonable offer can result in a missed opportunity. The market ebbs and flows and timing it can be difficult. If a business owner is prepared to sell, a fast exit should allow more flexibility in negotiating the other terms.
All Cash Deals
A cash transaction is definitely easier than dealing with financing terms from a conventional or SBA loan. Publically traded buyers may also offer stock shares as part of the transaction. While this can have certain tax benefits, sellers should be conscious of the fact that this is still a risk. At the end of the day you cannot lose by accepting an all cash offer and in some cases it may be worth taking less in cash just to avoid complications and risks.
An Appropriate Successor
Business owners take great pride in their companies and with that pride comes a lot of emotional attachment. If a buyer comes along that the seller believes can truly carry on the legacy of the business, it may be more satisfying to sell it to them, and negotiate other parts of the deal. On the other hand, finding the right buyer requires extensive due diligence and finding one who will be willing to continue the company culture makes the process even more difficult. At some point the seller needs to be able to come to terms with the fact that whoever buys the business will want to run it their way and if they truly want to move on from the business, they should not hold out until the perfect successor comes along.
Selling All or Part of the Business
Many sellers are looking to move on to the next part of their lives or their next venture, and sell the entire business at once, but that is only one of a few exit strategies. Many are also willing to partially cash out, and stay involved in the business. Similarly, a lot of buyers may want to own the business, but not be heavily involved in running it. In this case, they may ask the seller to stay on and run the business, at least for a while. Selling only a portion of the business can have its advantages and disadvantages, so a seller should take into account their own personal and financial goals before negotiating this.
An earnout is a provision that states that the person selling the business can receive additional compensation if the business achieves certain financial goals post-sale. This is typically used when the buyer and seller can’t agree on a purchase price and the buyer offers an earnout, opting to purchase the business for less and payout additional money down the road. Earnouts can make for difficult accounting and can be problematic after closing. They typically favor the buyer, because they have little to no downside in the agreement, and seller ends up getting tethered to the company until the earnout expires. Generally it is a better idea to stay a little flexible in the purchase price negotiation rather than accept an earnout.
Closing costs, seller expenses and income taxes will need to be paid once a business deal has closed. The amount remaining after all of these expenses have been paid is the number the seller should focus on. This is why it is important to consult with a CPA, who can advise the business owner on the deal that results in the highest after-tax number. Many different scenarios that can be negotiated between buyer and seller have that will affect the amount of taxes a seller has to pay. Getting an expert involved in this part of the selling process is advisable.
There is an extensive list of details and negotiable terms that need to be reviewed when considering any offer in a business transaction. This is why it is also a good reason for a seller to hire a qualified professional, such as a business broker, to represent the business during the sale process. Not only will it allow the business owner to focus on running and maintaining the business, it will ensure that no stone is left unturned. Business brokers provide valuable services and can negotiate deals on the seller’s behalf, with their best interests in mind.
If you are considering selling a business you own, contact Corporate Investment Business Brokers. Hiring the right person to sell your business can help to avoid common mistakes and maximize the return on your investment. The process begins with a free, no-obligation business valuation. Call (239) 936-1718 to get started.