How to negotiate the best deal when selling your business
When setting up your company, the idea of selling your business will be a long way in the future. But there will come a time when you want to sell and you’ll want do negotiate the best deal.
No matter the reason for selling up, if you’re not allowing time to prepare and plan, you might not achieve its true value.
So, how do you negotiate the best deal when selling your business?
How to negotiate the best deal
Current statistics show that over the past six years, the number of businesses has grown. Despite the pandemic, there has been a steady increase in new companies – with 3 million that are VAT registered now in existence, up from 2.6 million in 2019.
As a result, there is more competition – and that’s a good thing! Because that means there is more chance of other companies looking to make acquisitions.
Acquisitions in the UK topped £4bn in the first quarter of 2022, so selling your business may not be as big a problem as you expect.
But what about the best deal? It may not just be about how much money you make from the sale, but other guarantees that the highest bidder won’t request.
5 key points to help you get the best deal
When it comes to selling your business, we believe there are 5 key points to remember:
Preparation is definitely a winning tactic; make sure you know your facts and figures and plan your negotiating strategy before the negotiation meeting, not during. Decide what you would like to achieve, rehearse the justifications for your position, and know your bottom line.
2) Tell the truth
Whilst there is no need to give away your bottom line position, telling outright lies is counterproductive. Trust is key to achieving a deal that both sides are happy with. Mistruths tend to be found out and destroy trust. Trust, once destroyed, is very difficult to rebuild.
3) Keep your cool
Despite efforts to build trust between buyer and seller, there is often a general feeling that the “other side is trying to get one over on me”. This often happens when the details of a deal are being discussed between each side’s lawyers and the buyer and seller themselves are not communicating regularly. Don’t be offended by a bargaining position or when a buyer points out weaknesses in your business. Keep the emotion out and consider the proposal on its merits. If you don’t like it, you can always say no and suggest an alternative.
Seeing the issue from both sides is also very helpful when trying to reach your goals, as is admitting fault and conceding points. Clearly not to the point of lose-win scenarios but the best negotiators have learnt that being fair to both sides is what works best.
5) Seek a win-win
Don’t try to win every single point. Look at the bigger picture and if you need to concede on a certain aspect of the deal, try to find another aspect of the deal that can be improved on to compensate. As we’ve said, negotiating the sale of a business is not just about headline price, and there are often several levers you can use to find the win-win scenario for both sides. Remember the best deals are found when both sides win.
What to expect from negotiations
When it comes to selling your business, negotiations will involve various aspects of the company, not just its turnover and profits. This includes working out what assets it has accrued over time, such as buildings and land, vehicles and machinery, etc. You need to make sure you understand their real value and the basis on which their value has been applied.
Detailed maintenance and service records are important for supporting the company’s value, so make sure you know where they are or it will devalue the assets.
Don’t forget, the deal and the circumstances surrounding the sale of your business isn’t just about money. There are other negotiations necessary apart from the financial aspect that can be a deal breaker. Here are just a few to consider:
Transfer of staff
In company sales, the staff naturally stay with the company under new ownership. However in the case of a sale of assets and goodwill, staff contracts are protected during the transfer from one owner to another under regulations known as TUPE – the Transfer of Undertakings (Protection of Employment). This is a complex piece of legislation and you must understand the implications of failing to meet the requirements.
Warranties support claims you have made about your business. They also protect the buyer from financial loss/loss of business in the future. The information you have provided can be difficult for potential buyers to substantiate. Areas that are covered by warranties include accounting information, rights to intellectual property, contracts and tax issues.
Indemnities cover specific scenarios that may happen in the future. For example, legal problems surrounding a product or negotiations that are currently being agreed between clients and customers.
When you negotiate your business deal, the buyer may want you to agree to a non-compete clause. This means you will not set up another business in the same industry. They can also insist on covenants that prevent you from poaching customers or staff for a specific period of time.
As you can see, there is more to selling a business than purely putting a price-tag on it. And that’s why you need experience when it comes to selling.
If you’re ready to sell your business, find out more about how we can help here.
Article updated 21st October 2022