How to Sell Your Business, page 23

High Sales Price Versus Terms, continued

This goes back to your reasons for selling the business in the first place. If you’re selling because you need additional resources to grow the business, and plan to stay on as the manager, it makes sense to accept conditional payments. Otherwise, most sellers should try to walk away from the closing with as much cash as possible. An exception here might be if you were acquired in a stock-for-stock transaction with positive tax consequences. If you believed in the acquiring company, you might want to hold the stock for the long term.

Individual purchasers usually need some seller financing. In this situation it becomes really important to accurately qualify the buyer to see how much debt is feasible. It’s likely that money you are owed will be subordinated to bank debt, so if the business gets into trouble you end up just with the down payment. It simply lacks common sense in this situation to sell this business at a price so high that it leads to failure.

Another area of concern is the representations and warranties you will be required to make. Will this make you vulnerable to being sued?

You should not rush things with a buyer (particularly if you have multiple buyers). Put it in the context of asking how much the buyer would be willing to pay, and get a sense of the terms and conditions they would expect in the definitive deal.

Any offer that includes a financing contingency is only as good as the likelihood that the contingency can be met. Beware of taking your business off the market unless you are absolutely convinced that financing will come through.

Negotiation Tips

It’s well known that the best negotiation strategy for a seller is to find several interested potential buyers. The existence of the other buyers will cause each to be willing to raise his price, and to move more quickly. Make sure that your would-be acquirers know that they have competition. Buyers played off against each other are the best spur to getting deals closed at a good price.

At some point, however, you will have to deal with one candidate on an exclusive basis. The trick is to make sure that this buyer is as committed as you are. A substantial binder that the buyer will lose if he or she walks away may take care of this.

Continued next page

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