How to negotiate the sale of your business

Assemble a strong advisory team to help you navigate the sale

3-minute read

You’ve found a buyer for your business. Now it’s time to negotiate the sale. Lots can still go wrong to derail the transaction.

You can help ensure success by going into the process well informed about the steps. Misunderstandings at this stage often spark distrust that upsets negotiations.

“If you’re not prepared or don’t have the right advice, all kinds of things can go wrong,” says Matthew Kellow, Vice President, in BDC’s Growth & Transition Capital, which finances business transitions. “This can complicate negotiations, waste time and even jeopardize the sale.”

Here are five tips from Kellow to keep in mind.

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
  • terms
  • conditions
  • warranties
  • requested vendor financing
  • deposit

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.

Next step

Find out how to plan your exit strategy by downloading the free BDC guide, Selling Your Business.