The seller should do everything possible to keep negotiations moving. The requires being prepared with all information and allowing for different payment options.
Picking up from where we left off last month, the decision has been made to explore the sale of a vending operation. Last month’s article examined the homework that needs to be done before the vending operator presents his/her business for sale.
A recent article in The Wall Street Journal noted that experts suggest small company owners get organized three to five years before they plan to exit the business. Every smart business owner should have an exit strategy.
A common observation from those who have traveled down this road is that it always takes longer to prepare all the parts needed, and lay them out in a smooth prospectus, than expected.
At this point, the owner has done all in his power to achieve the highest possible selling price for the company. He is on top of every last detail of his business and outwardly displays full confidence that his offering has high value. This posturing is one of the most important elements in effective negotiating.
It is now up to the prospective buyer to give some indication of what that price will be. In negotiating, it is always best to let the other party lead out with the first offer.
Thus the negotiating process is opened. I cannot overemphasize how important it is for the seller to be prepared to answer any possible question that may come up with crisp, clear facts and full disclosure.
Once the negotiations have begun, it is important that they move along at a steady pace. If the negotiations have to be put on hold because someone doesn’t have all the important information, the delay could jeopardize the transaction.
This is not fun and games. It is in the best interest of both parties to move expeditiously through each step. At the first indication that this is a waste of time and energy, any astute business person should immediately pull the plug on the entire process.
NEGOTIATE FROM STRENGTH
If the prospective buyer smells a fire sale, it will result in a low offer and very one-sided terms and conditions. Once the negotiations have begun, it is important for the seller not to give the impression that he must sell. In fact, it is a good idea to have a plan behind the plan just in case the business does not sell. When it becomes evident that, for whatever reason, your business is not going to sell, get back to plan “B” (recapitalization, downsizing, diversification, management reorganization, etc.,) without delay.
Negotiations often involve three sometimes inconsistent objectives from the seller’s point of view: speed, confidentiality and maximum value.
Following are negotiating tips:
- Act with absolute truthfulness and clarity in all negotiations so that any potential deal breakers surface early and can be dealt with before the 11th hour.
- Point out all non-negotiable items early.
- Decide up front who the ultimate manager of the selling process will be within the company; only one person should do the talking.
- Have a schedule for the selling process; keep the momentum going. Deals that drag don’t close.
- Set up a complete file, in one place, with of all relevant information regarding the sale.
- Be sure you are negotiating with the decision maker. A lot of time has been wasted in negotiations with the wrong person.
- Be sure you have an interested buyer who has cash or can obtain financing. If you question his ability to obtain financing, require him to submit a letter from his bank validating that he has the financial ability to do the deal.
In some instances, an employee or an employee group might be interested in buying the business. Often, employee groups must borrow heavily to buy the company, and as a result, they will be forced to run the company on a shoestring. The leading cause of all small business failures is undercapitalization at the outset.