When it comes to selling your business, it pays to have a sound negotiation strategy.
Building up a business from scratch is no easy feat; it takes many years of hard work, determination and good business planning to establish a successful enterprise. Deciding to sell a business, whether due to retirement, change of circumstance or a career switch, means becoming a master negotiator. That is, in order to get the best deal for your business.
Negotiating the deal can be a very stressful part of the process. You will be required to attend meetings, prepare for due diligence, answer what will feel like endless questions and the process will seem to go on forever. Add to this the fact that your business still requires you for your ‘day job’, as do your staff, clients and family members, and suddenly there is a lot on your plate for an extended period of time.
The key during the negotiation phase is not to lose sight of your business, nor rush anything. You need to proceed at a rate that you are comfortable with and be capable of handling without impacting your life and business negatively. In most instances, regular communication with your advisor/s, the potential acquirer and sometimes, their advisors is important – even if it is to say you are not ready to come back to them with an answer on whatever question or point they may have raised. It is a very good idea to engage with external advisors, such as a mergers and acquisitions (M&A) specialist, lawyers and accountants, who can guide you through this process to help you be as prepared as possible.
Bear in mind, that to achieve a successful transaction, both parties have to ultimately agree not only on a price, but also the sale agreement contractual and/or legal matters. When starting a sale process, it is important to have a price in mind, or preferably a price range that you would be happy with. This will ultimately give you an absolute ‘walk away’ price that you will not go below but also provide an advisor with a range that they can work with. If this range is too high, or too low, at least you can get the advice early on and not waste your time or money on a process that is not likely to be successful.
Remember, your business is only worth what someone is willing to pay for it – this is important to keep in mind during the negotiation phase. Both parties will play it tough however you (and the acquirer) will need to keep a commercial hat on if you want to achieve a sale, which means being flexible during the negotiation phase. This could be flexibility on price or other points of negotiation when discussing the sale agreement, and if there are points that you are in flexible on, it is better to put them on the table early on so that all parties know this, understand it, and work out whether they can live with it.
Another aspect that is common during the process is referred to as ‘deal fatigue’. This refers to a condition during negotiations where parties on either side of the negotiation begin to feel frustrated, helpless, or exhausted by the unending negotiation or due diligence process. Sometimes, members of negotiating teams tend to want to simply give up, either due to the endless negotiations or failure to reach a consensus.
Deal fatigue is common in M&A where parties tend to become adamant in their proposals and positions, which often prolongs the negotiation process. As a result, the parties may want to resign or exit the negotiation teams and focus on other more ful lling tasks. Again, regular communication and consultation with your advisor is vital during this process to ensure that deals are not derailed through fatigue.
In order to get through this tough phase, consulting with M&A advisors, family members, peers or third party professionals, such as accountants or lawyers, is of huge benefit. These people bring objectivity to the process so that interactions are based on facts, not emotions. This typically helps to prevent the process from being derailed and can keep things moving forwards. Enlisting the services of a reputable business advisor, such as Catand Advisory, can help you navigate these tricky waters and ultimately ensure that you get the best price for your business.
Andrew Usher, Director, Catand Advisory