How to Sell Your Business, page 24

Negotiation Tips, continued

The standard buyer trick is to get the seller into a situation where there are no other buyers—either because the seller is now committed to exclusive negotiation, or because there are no other buyers. The buyer then starts to use various pretexts to whittle away at the agreed-upon price. This is like the death from a thousand cuts, and can painfully reduce the deal price if you allow it to go on. The best ways to deal with it are:

• Avoid getting into exclusive negotiation unless the buyer is manifestly committed, preferably with a substantial binder that is at risk if the deal doesn’t go through.

• Be prepared to walk away. Make it clear at the first of the “thousand cuts” that you are prepared to walk away. Unless the buyer’s demand is reasonable, the first appeasement probably leads to more “cuts.”

• Pre-qualify the buyer to make sure he or she is serious and that the buyer doesn’t have a pattern and practice of this kind of thing (if possible, ask the sellers of other companies bought by this buyer).

• Have you “ship” in order. The fewer glitches the buyer discovers during the due diligence process, the less reasons for renegotiating the price of the deal.

The Purchase Agreement

The Purchase Agreement is the definitive agreement describing what is to be sold and all terms and conditions. Anything not included in the Agreement is not part of the deal, even if you’ve discussed it with broker or buyer.

While you can get preprinted standard business purchase and sale agreements, these probably will not do the trick—most business sales are one of a kind. Your lawyer should be involved in formulated the Purchase Agreement, and, in any event, should read it and review it with you before you sign it.

The most important structural question regarding the Purchase Agreement is whether it is an “asset” purchase or a stock agreement. In an asset purchase, the buyer takes the assets of your company, but is not responsible for any liabilities (you are). With a stock agreement, the purchaser is buying all the stock in your company, and is responsible for all liabilities (so you are off the hook for business debt).

Buyers tend to like asset purchases because there is less chance of some liability they did not know about appearing in the future and biting them.

In either case, the Purchase Agreement should list as explicitly as possible exactly what is being sold. If necessary, supplemental lists can be attached showing the property that is being sold with the business.

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