10 tips for selling your business

Selling your business is like selling your house, except with even more stress and more chance of negotiations either dragging on or breaking down altogether. If you are going to hit that deadline at all, it is wise to be equipped with some elementary bargaining tactics. Bearing the following tips in mind can help you cut a deal that leaves you richer and the buyer happier.

  1. Keep some good news up your sleeve
    It is tempting to tell the purchasers all the good news at the start of the process to get the highest bids. But you might want to hold back some good news to mitigate any bad news that the purchaser finds in the due diligence.
  2. Take away the buyer’s risk
    Take away the risk of there being a skeleton in the closet by giving the purchaser meaningful warranties. The buyer can’t then use that risk to negotiate a price reduction.
  3. Beat budget
    Purchasers only have a short period to assess the asset they are buying. Protect yourself by setting sensible, achievable budgets in the year of sale. Remember it might take several months to do a deal in normal circumstances.
  4. Time is the best due diligence
    The longer a purchaser has to look at an asset in operation, the more comfortable they become that they understand it. That said, the longer a business is in the shop window, the more the employees and customers will become unsettled. Balance is needed.
  5. Control and communication
    The vendor sets the process and should control it. You need to explain what you are doing and why you are doing it.
  6. Be commercial
    Your objective is the best possible balance of risk and reward, subject to the constraint that the other side can always walk away. By bending on some points you may win on others.
  7. Go to bed early
    Many transaction disputes are won by the side with the most energy. Energy comes from knowing when to take a break.
  8. Do buy a dog, but don’t bark yourself!
    A strong advisory team can win many little battles based on their knowledge and experience. Only the unique points of the specific business sale should need the vendor’s and purchaser’s undivided attention.
  9. Sweep all the issues up
    There will come a point towards the end of the deal when a number of probably unrelated issues will need to be resolved. To stop this dragging on, try to pull all the final issues together and negotiate them as a single package.
  10. Stay close when you have sold
    If problems arise after completion, it is much harder for a purchaser to decide to sue a vendor if their relationship endures after the sale has completed. A vendor who helps a purchaser after completion both enhances their own reputation and, equally importantly, reduces their risk of any comeback under the warranties.

Finally, it pays to remember that negotiating is all about people. It is as much an art as a science, so having experienced advisers onside is always better than going it alone.

About the author.

John Gilligan is a Corporate finance partner at PKF. John has been involved in the private equity industry since 1988 both in the London and Midlands markets. He has extensive experience in structuring and negotiating complex transactions, both on behalf of purchasers and vendors. He has an MBA and is a visiting lecturer at the University of Nottingham.

About PKF.

PKF is a leading firm of accountants and business advisers with more than 1,800 partners and staff operating in 23 offices in the UK mainland firm, a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors.

Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical.

Disclaimer.

Copyright (c) PKF (UK) LLP 2008. All rights reserved. The items contained in this article have been prepared as a general guide. They are not a substitute for professional advice, which would necessarily have to take account of the particular circumstances. The information and opinions given are liable to change without notice. Neither PKF (UK) LLP nor its partners or employees make any representation regarding the completeness or accuracy thereof of any user acting or refraining from acting upon anything contained and they accept no responsibility for any loss or damage incurred as a result in this article or upon its omission there from.