Canada: Negotiation Strategies For Selling Your Business

Negotiating the sale of your business isn't easy. The ability to negotiate is vital when entering into a merger and acquisition (M&A) transaction. However, it's difficult to stay objective when parting with a company you've dedicated years of your life to. For many people, this is an emotional process. It's important to enter M&A negotiations with an understanding of your priorities for your future and the future of your company. Keep the following strategies in mind and you are far more likely to get the deal you're hoping for.

Remember: there are two sides to every deal

Every M&A negotiation is unique, but the scenario is typically the same: two parties come together to try and make an ideal arrangement for themselves. The buyer and the seller each have a different perception of the value of the business and the transfer of risk. The seller wants to maximize the value of the business and retain little risk. The buyer wants to pay a lower price and leave as much risk with the seller as possible. However, there are a few situations where the buyer may be willing to pay more. For example, if the seller's long-term participation in growing the business is needed, a buyer may be willing to pay a little more and absorb more risk. Also, highly desired technology or patents may increase the buyer's willingness to pay more.

Understand your needs and the buyer's needs

If either the buyer or the seller feels disadvantaged at any point in the process, the entire deal may fall apart. Months of work, negotiations and costs could go to waste. You need to approach the sale so that you maximize the value of your buy-out while ensuring that the buyer feels they receive significant value from the deal. If you have multiple potential buyers, understanding their priorities can help you identify and attract the best buyer for your business.

Prepare for the sales process

Selling your business requires an adjustment and can be distracting for a company. It's important that you effectively navigate the sales process while continuing to run your company. Allocate your time effectively. Ensure your management team is focused on improvement and growth. Empower them with a transition plan and keep an eye on financial performance, as potential buyers will be looking at that. In addition, work with your team to ensure that you've optimized controls, identified opportunities and developed plans for the future. A strong plan and consistent growth will optimize value and facilitate the transition for your employees and the buyer.

Know the strengths and weaknesses of your business

To get the most out of your negotiations, you need to know your business, its strengths and its weaknesses. If you're diligent with preparation, you can effectively highlight the strengths and address the weaknesses when you're negotiating with potential buyers. Evaluate your position and predict potential issues.

Know what your business is worth

Be prepared with accurate financial information about the value of your business. This puts you in a better position to communicate that worth to a potential buyer. You should also know your competitors and market trends. A competitive analysis will give you an idea of the value of similar companies, providing a base point for price expectations. A good understanding of market trends will prepare you to speak to potential buyers about future opportunities or risk mitigation.

Know yourself

To negotiate, you need to know your negotiating strengths and weaknesses. Play to your strengths and create a plan to mitigate your weaknesses. For example, if you become easily frustrated and you can feel yourself getting angry about a clause, take a short time to regroup and come back to it when you've clearly thought about the entire situation. Staying calm and focused gives you clarity to understand each issue and its strategic implications. Preparation, strategy and coordination will determine your level of success.

It's not all about price

For many business owners, price might not be the most important factor in the negotiation. Take the time to evaluate and rank your priorities, so that you're prepared to negotiate the right sale for you and your business. Before your enter negotiations, be sure you know what you want, where you're willing to compromise and the areas where you plan to stay firm. It's essential to have an ideal outcome in mind, but also understand that there will be tradeoffs.

Reduce your risks

There are some actions you can take to reduce negative impacts of sales negotiations. For one, be sure to prepare a non-disclosure agreement (NDA) in the early stages of the process. You don't want to disclose sensitive business information to a potential buyer without a signed NDA. You should also ensure that books, files and records are complete and organized. A buyer will insist on seeing these records and, as a seller, you should be able to deliver them efficiently.

The letter of intent (LOI)

When a prospective purchaser decides to explore a possible transaction, the purchaser will issue a LOI. You need to review the LOI closely to ensure that it is clear and concise on the terms. You don't want to sign the LOI only to find out later that certain verbal terms of the agreement were missing from the document. Be as clear as possible with the LOI and it will save time and possibly opportunities when it comes to the final purchase and sale agreement.

Hire professional help

Everything described above impacts an M&A deal and the complexity of negotiations. You need to work with professionals to maximize your results. With the right support, you will have the benefit of better business intelligence. Besides getting advice from a lawyer, an accountant and a tax advisor, you will want to work with an experienced M&A advisor, who can help you prepare for the sale, navigate the M&A process and communicate effectively with the buyer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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