When selling a business, it’s easy to focus just on price. While price is the star of the deal, additional deal terms when selling a business make an important guest appearance.
Business sales are complex. These transactions involve several parties, complex agreements and conditions and a fair share of uncertainty. While the sale price is normally the main focus of negotiations, business sellers and buyers also care about other factors which can derail a deal if not properly addressed.
Below are the top 5 deal terms when selling a business which can have a significant and decisive impact on the deal and whether it’s consummated.
1. Deal Terms When Selling A Business: Quick Sale
In business sales, you either have time or price as your main priority. Those with time, wait for their price. Those without time, will settle for less to expedite their sale. Next to price, the timing of the sale is a significant component.
Sellers who are in urgent situations, such as divorce, illness, disability, etc. will prioritize the timing of the sale to help them move forward. The more urgent, the more willingness the seller has to negotiate price so long as they are able to move forward quickly with the sale.
2. Deal Terms When Selling A Business: Confidential Sale
Most business sales are confidential. For some business owners, confidentiality is extremely significant. We have had sellers’ business names withheld until after the business contract was signed and then modified later to amend the name.
For some sellers, the disclosure of their business sale may cause employees to leave or vendors to modify terms. For others, it may set off a cascade of consequences that the seller wants to hold off until the transaction is completed.
3. Deal Terms When Selling A Business: All Cash Deal
Some businesses are not financeable. When this happens, either the seller offers seller financing or they have to find a buyer who can pay all cash to purchase the business. This may be to the buyer’s advantage since all cash buyers are infrequent which then forces the seller to negotiate the price in order to accommodate the lack of financing.
4. Deal Terms When Selling A Business: Quality Business Successor
Sellers who care about their business legacy may prioritize the right buyer for their business. They care about their businesses, employees, vendors, etc. You often see this in professional services.
In this situation, the seller is very focused on assuring that the buyer shares their vision and has the right mojo to continue their business’ legacy as if the owner was continuing themself.
5. Deal Terms When Selling A Business: Favorable Tax Consequences
Many a business broker will tell you that it’s not how much you sell the business for, it’s how much of it you get to keep. The difference is based on favorable tax consequences. Once all the sale expenses are deducted and income tax paid, how much does the seller actually net?
A CPA is a fundamental advisor for every business seller and buyer. Business owners should consult with their accountant before and during their business sale in order to understand their tax implications. They need to know which taxes will be calculated and how the deal can be structured to minimize their tax exposure.
Sellers with non-price compelling motivations need to be ready for the kind of offers they are likely to encounter. A skilled business broker can help their client understand the consequences of prioritizing their motivation. In some situations, the buyer will readily accommodate. In others, the buyer will leverage the seller’s motivation by negotiating down the price if there are no competing offers.