Tips for negotiating a sale
Unlike a home, selling a business means selling something you have built from the ground up. You have an emotional connection to your business as a person has a connection to a home they sell. The difference is that your connection is entwined with what you have dedicated your career to building. As such, there are some key areas you need to have a thorough understanding of when negotiating a sale.
Know your worth
One of the biggest mistakes those selling their business make? Assuming the buyer is the only one who needs to do their research. You need to know the value of your business, its various assets, not the least the value of your staff. This process is the most demanding part of selling your business but you can find substantial help in this regard. An accredited business broker can help you organise this process, as can a business advisor but in a nutshell, you need to have organised:
- Your financial statements for the past 5 years (outgoings, earnings, annual turnover, cash flow statements etc.)
- Details of physical assets, such as furniture or equipment/machinery.
- Legal documents, such as your lease and insurance policies as well as registration details (ABN, licences, permits etc.)
- Details of your three contact points: Employee details, supplier details (if relevant) and lastly, customer details.
- Documentation related to the functioning of your business, such as marketing plans, procedures, sales information, rostering information etc.
Having a clear and well-documented idea of the value of your business will help you develop a ‘walk-away’ number. This is like a reserve price in the residential market. This number must be the clear mark where a deal is feasible and affordable for the seller. It also needs to reflect the market, the value of the business and the reasonable expectations of a buyer.
Know your buyer
Just as you know your own business, make sure you have a clear understanding of your buyer. Having a clearer understanding of what is driving them in their pursuit of your business, not only helps bring a deal closer to fruition, but helps you to negotiate with increased bargaining power, as you understand what your buyer wants and what concessions they may make in their pursuit of their goals in the purchase.
If you have an idea of the sorts of concessions your buyer may make during the negotiation process, make sure that they know what concessions you are willing to make. Sound a bit like showing your cards? Not at all. If you have made a concession during the negotiations, first make sure it is a concession that aligns with what you have identified as your buyer’s goals, second make sure the buyer is aware of this concession and that you couple this information with what you want in return for this concession. What might this look like? You may have a star member of the staff who you could easily take with you to your next business while still leaving the buyer with enough staff to make the transfer feasible. However, if through your research you find that the buyer lacks the sort of expertise that very staff member has in spades, then you may let them know that you will not take that employee with you, so long as that concession is reciprocated in some way that suits you, or that is reflected in the price.
Don’t feel locked in
Remember, if you have a bad feeling about a deal, or it doesn’t even begin to touch what you have realistically established as your threshold price, then it is okay to walk away from the deal. It is often seen as more common for the buyer to walk away from the deal, but have faith in the worth of your business when negotiating a sale.