Balancing the Give and Take in Negotiations
Over the past 15 years, I’ve become very familiar with the challenges impeding the deal-making process. The Alberta Business Exchange has, of course, developed systems and policies to maximize your chances of success, but I have seen deals go south due to issues that should not have been material. Here are a few common situations.
Can’t Let Go
I have often heard vendors say that signing the final agreement feels like selling a child. I’ve been there, sitting in a parking lot in my car, staring at a trust cheque after selling one of my companies and feeling like I lost a part of myself. It’s always emotionally difficult, even when you know it’s the right thing to do.
Once you make the decision to sell, you need to participate fully, be reasonable, and commit to letting go. This includes the following:
- Prepare and give information for your marketing package to your business broker quickly;
- Evaluate buyers using common sense, understanding that no one is perfect;
- Avoid scrutinizing every clause in the final agreement to the point where the buyer loses trust in you and backs out of the deal.
Price Versus Cash In Your Pocket
You list your business for $3 million. After a short time, I bring you two offers: one for $3 million and one for $2.5 million. Which one will you take? The answer seems easy, but what if the higher one will net you $2 million while the lower one will net you $2.3 million? It’s all about tax and what you end up with when the dust settles. Look at the deal structure, not just the number.
Protecting Your Staff
You want to be sure employees are taken care of. But imposing restrictions on a buyer may kill the deal, and even cause your staff hardship in the future. The truth is that most buyers want to keep the staff, but if personality conflicts arise, the best thing may be to part ways. And don’t forget—you took the risk. You went without a paycheque during the tough times. You worried about cash flow and how to solve problems. You deserve to reap the rewards.
You want a short non-compete clause in the final agreement in case you get bored after a few years? Just think for a second what this means for a buyer. With in-depth knowledge of the buyer’s industry and business, you may soon be the competition. This is a definite deal killer! If it’s time to sell and move on, sign a long-term non-compete agreement.
In an ideal world, you sell your business, get a cheque, and get on with life. Don’t count on it. Vendor financing is an insurance policy for the buyer. By providing it, you’re committing to transition the business and you’ve made certain warranties and representations regarding the state of the business’ affairs. As long as everything holds true, there shouldn’t be an issue with getting your final payments. Vendor financing will also increase the pool of eligible buyers and make banks more receptive to financing a deal.
It’s our job to keep vendor financing to a minimum—often it’s only 10% to 25% of the business value and secured by the shares of the business or some other external asset or guarantee.
These are only a few of the issues that we manage daily. Thinking about them before you begin the process of selling your business gives you peace of mind and comfort through negotiations. If you would like to begin the process of planning the sale of your business, Contact us.
Let us Become Your Business Sale Advisor
In a nutshell, our transaction advisory services are focused on you—your questions and concerns, and the emotions you experience throughout the process. We become another of your trusted advisors, along with your accountant and lawyer, someone who understands you, who you can lean on when you need help.