1. Get good advice
It’s important to assemble a strong team of advisors to help you navigate the sale process, including legal, tax and financing experts. It’s especially helpful to have a lawyer experienced at negotiating business transitions.
“Most business owners sell their company only once. They don’t have the experience to know why certain things can be deal breakers, the right team can provide valuable advice throughout the process,” says Kellow, who is also a chartered professional accountant.
2. Get it in writing
You should request a signed letter of intent that outlines:
- the proposed purchase price (or price range)
- working capital adjustment
- a payment schedule
- requested vendor financing
This letter isn’t the final sale agreement. Rather, it establishes a broad framework for your negotiations on a final sale agreement. Respond with a counterproposal if needed.
3. Cooperate on due diligence
The buyer will likely want to conduct due diligence to understand your business in detail before buying it. You’ll need to work with them to create a plan for how the due diligence will be done and identify when proprietary information should be made available. The buyer will require information such as financial statements, lists of customers and assets, as well as any legal or tax issues. The buyer will also likely want to speak with key employees. Think about how and when you’ll communicate with employees about the process.
You should try to keep the due diligence period as short as possible. Your business is off the market during this period, and you can’t entertain other offers.
4. Ask about financing sources
Ask the buyer about their financing package for the purchase, especially if they’re asking you to maintain a minority equity interest or a form of vendor financing. You want to make sure the new owners will be on sound financial footing. If the sale relies on too much debt, the company could run into problems, leaving no additional financing room.
5. Negotiate a clear sale agreement
Negotiate a clear, detailed sale agreement with the help of your advisors. You don’t necessarily want to accept an offer just because the price is right. Ideally, the buyer will share your vision of the company, especially if you want it to thrive and be paid back your vendor financing.
The deal should also include details of any future involvement you’ll have with the company. If you are to have an employee role, you should negotiate a solid employee agreement.
For more advice, download your free copy of our eBook Business Transition Planning: A Guide for Entrepreneurs.