Negotiations in a Business Deal – Perspective of a Buyer and a Seller
Becoming a businessperson is far more attractive than working for someone else, follow their orders, depend always on their decisions and finally wait for that day when you get a fixed amount of cash in your hand. And when it comes to starting a business, it’s far easier to buy a readily established business than starting it all from the scratch. But whether it is buying or selling a business, the process is not easy. There are quite a number of stages involved in it, like valuation of the business, seeking advice about taxes, research, initial offers, negotiations, heads of agreement, taking correct precautions and completing the sale in the end. Perhaps the most important part among these is negotiations, and we’ll see here negotiations from the buyer’s as well as the seller’s perspective.
Negotiations in a Business Deal from a Buyer’s Perspective
It is a basic requirement that when you try to buy a business, you should remember your aims and the risk assessment you made at the price you offered, all through your research and negotiations. The money you paid to the adviser might be lost, but it should be preferred to cancel the deal than to take up liabilities that you are not able to afford. Keep at least one more target business in the reach in case of failure of this deal.
Do Your Own Homework: Do the homework carefully – valuation of the company, its position in the market, how it can suit your current business if any – and evaluate the total price against the total profit before you propose an initial offer. Do a complete inquiry about why the seller wishes to sell the business and whether it has some problems. Take a decision about whether you want to buy only the assets so as to be free from any legal responsibilities for earlier contracts, or the whole business. If you are planning to buy only assets, remember that the seller may demand a higher cost to balance for any loss of tax benefits that they can get from the sale of shares.
And before you decide finally to buy, ensure that:
- the seller has provided you all the necessary information
- you confirm the seller’s claims from the business records and by discussing with suppliers, clients, etc
- you have exact knowledge of the ownership of the business and its assets
- the disclosure letter and warranties cover every unforeseen contractual obligation
- you have the knowledge of the value of your liabilities to the employees, particularly about redundancy pay and pensions
- you have got all problems resolved and agreed upon in writing by the seller
Negotiations in a Business Deal from a Seller’s Perspective
Now, let’s imagine that you are on the opposite side, i.e. a seller. What should you do? This time you have to remember what you plan to achieve by selling your business, all through the negotiations. If required, consider again what you are about to sell, the type of buyer and funds. For instance, you might consider an employee buyout instead of a trade sale. Though you lose the amount of fees you paid to the advisers, it might prove to be better than selling and not attaining your goals.
While selling to another business, make use of a business broker, corporate financier or transfer agent to submit your sales memorandum. Doing this, you can keep your identity secret till you choose the best potential buyers.
Before starting negotiations, see to it that your buyers sign non-disclosure or confidentiality agreements. It is necessary to check their credit-value at such an early stage so as to be able to reject approaching buyers who are unable to pay. Study the prices and terms they have put forth. Some of them may have a number of future payments associated with profits or other factors. Choose the worthiest among the buyers, but keep others in the lineup in case the negotiations with the first one don’t prove to succeed.
You have kept two criteria while choosing a buyer – one who pays the highest price and the one who will best secure the future of your business. In either case, you have to be ready to keep working for the business for a specific period if your experience, contacts and knowledge are important for the business.
Be very careful about the wording and what comes under the warranties and indemnities. Get your solicitor to draft a disclosure letter to restrict your liabilities and a vendor safety schedule to restrict the time duration for which they apply.
You have to be equally careful about the financial information and do a more thorough check of the financial track record of your buyer and the payment structure put forth by them.
Before you decide to sell and agree to it, confirm that the buyer has solved all issues and agreed it in writing.
Whether you are a buyer or a seller of a business, you have to take great care because a business is a big investment, not only of money, but also of your knowledge, experience and hard work. And so, it is necessary to take safety measures before going into a final contract.