Business Sale Negotiation Primer – Your Top 6 Goals During Initial M&A Discussions
What to Look for in a Buyer for Your San Francisco Bay Area 8, 9, or 10-Figure Business
How can you tell if you have a good buyer for your San Francisco Bay Area 8, 9, or 10-figure business? This is your overarching goal during your initial business sale negotiation meetings.
When you’re ready to sit down with potential buyers, you have at least six goals – things you want to learn about the buyer – during these meetings.
However, before you can begin business sale negotiations, you must prepare four business exit assets. You need a business exit strategy, a team of experts, a clear presentation of the story of your business, and a good description of your business valuation. Use the resources below to prepare all this before starting negotiations.
With those assets in place, you’re ready to begin your merger and acquisition negotiations.
Let’s specify your primary goals during your initial meetings.
6 Goals for Your Initial Business Sale Negotiations
1. Do You Want to Continue Discussions After the Initial Meetings?
This is your number one goal for these opening meetings. Do they pass the ‘smell’ test? You want to resist the urge to start talking about prices and details too soon. Though you have a valuation and a sale package prepared, you don’t want to share too much of it until you have ascertained whether this buyer is worthy of serious consideration.
This matters for a couple reasons.
First, if negotiations proceed beyond this point, you will have to expose details about your business you may not want your competition to know. Thus, you need to know you’re negotiating with a reliable partner. Even if a deal falls through, can you trust them?
Second, your employees will find out, because once negotiations reach the next level, the buyer will do their due diligence and ask for records and documents of various kinds from some of your employees. You don’t want your employees knowing you’re considering selling until the appropriate time.
If this buyer falls through, another one may not come around for a while, and you don’t want people feeling like their jobs are at risk.
For these reasons, you must first determine if this buyer is someone you want to continue talking to. The remaining goals on this list serve to answer this question.
2. What Is the Buyer Looking for?
Ultimately, intangibles such as business philosophy, workplace culture, and customer expectations may matter more than the financials. Even if the numbers look good, if it’s pretty clear this buyer is going to completely change your company after they take over – and you don’t think that makeover is for the better – then it’s probably not a good deal.
You want to find out how your business fits into their strategy. Why do they want to buy it? What do they expect to accomplish? Will your employees and customers like them and their approach to the business? Do you share similar values?
Whether a merger or an acquisition, there must be sufficient alignment in these areas in order for the final result to benefit everyone affected by it.
If you detect a number of gaps in your values or these other intangibles, it may be unwise to continue negotiations. This can be difficult to work through, because you want to sell, and your emotions will kick in at some point. Turning away a potential buyer is not easy. But the regret and the disappointment you and your employees will experience down the road simply won’t be worth it.
This is why having a trusted team of experts (see the 5 advisors you need on your team) is so critical. Your emotions are wrapped up in your business and whatever happens to it. Your team can remain dispassionate, and give you objective advice and recommendations.
Thus, if your team advises you a buyer isn’t a good fit after these early business sale negotiations, trust their advice and wait for a better buyer.
3. Is the Buyer Committed to the Process?
When selling an 8, 9, or 10-figure business, you don’t have time for window shoppers. You want to negotiate with serious buyers only.
One simple way to test their commitment is to get them to sign a confidentiality agreement – drafted by qualified legal counsel. Any potential buyer who miffs at this, or who nitpicks the language and wants to make a bunch of changes, should be considered a questionable buyer, at best.
You can also ask about their own business. Ask about their customer profile, services, processes, organizational structure, basic finances, and the timing they expect for this process.
If it’s hard to get them to open up about details such as these, it’s a warning sign that this buyer isn’t serious about the merger and acquisition process at this time.
4. Is Your Business Aligned with Their Target Business Criteria
Make them get specific. They should be able to explain how the merger with or acquisition of your 8, 9 or 10-figure business bolsters their own goals.
Is it your customer base and the value of your list? Products or services you offer? Location? Size? Brand authority? Would the acquisition help them beat or keep pace with a competitor?
5. Are You Comfortable with Them Working with Your Customers and Employees?
How is their personality different from yours? How will their management style be received by your team? What changes might they make that will affect your customers, and how does that sit with you?
If they are a serious buyer, these are questions they should be able to discuss during these initial business sale negotiation meetings.
What you don’t want is for your business to implode two years after you sell it, leaving your employees embittered, your customers annoyed, and your legacy in tatters. You built this. You want it to continue to be a profitable enterprise for people who engage with it, from inside and out.
Plus, some deals get structured so that you have to continue working there for a certain amount of time, to smooth the transition. How will you handle this new arrangement? What will you feel as you watch certain changes being implemented, and no longer being the person with the final say? If those changes are positive, it will feel great.
But your continuing income, and sometimes your final payout, might depend on how the business performs during and after this transition period. Your own business sale package may depend on how well your buyer works with your customers and employees.
That’s why you must discuss their business during business sale negotiations as well. What is the culture there like? Do employees like working there?
Here’s a secret for one simple way to do this: If they come to these opening meetings as a group, watch how they interact with each other. Do their interactions, even in this setting, reflect what you would want to see in a future owner of your business?
6. Can You Agree on a Timetable?
If you get through these opening business sale discussions, and you feel comfortable with their business’ compatibility with yours, then you can begin agreeing on a timetable.
This timetable will spell out, in part, when you will start discussing details such as price and other terms. And if you have prepared yourself for this process using the resources given at the start of this article, then you already have a detailed analysis of your business’ valuation and your sale package.
You will be ready for future meetings as soon as your buyer is, meaning the process can proceed quickly.
What Happens Next?
Once you and the buyer agree you are a good match, your buyer will want to do their due diligence and learn all they can about your 8, 9, or 10-figure business.
They will contact some of your employees and ask for information you have prepared. They may interact with certain members of your business sale advisory team. This process will be fairly invasive for your staff, which is why you want as much of this as possible to be prepared in advance.
And again, this is also when word about the sale will get out among your staff, if they didn’t know already.
When and How to Tell Your Employees about Your Business Sale
The ideal situation is for you to control the narrative. The best way to do this is to shrink the time between when you announce the sale and when your employees meet the new owners. If you have navigated the business sale process up to this point using our recommendations and resources, you may even be able to announce the sale and introduce the new owners on the very same day.
You can then follow that up with reassurances that you’ll be staying on for a time to help with the transition. And, you can let the new owner reinforce your message that the company is doing great, and that your employees are the reason this is true.
The buyer of your business should perceive your employees as key assets, and this presentation is their first and best opportunity to communicate that.
Be up front about the health of your company in this staff meeting. Give time for people to ask questions. For everyone to succeed in the company under the new ownership, you don’t want large numbers of employees jumping ship for fear of job loss, or fear of change in general.
Here’s an article with more on how to break the news to your employees about your business sale.
How to Structure the Deal for a Business Sale
Find the final article in this business sale series about structuring the deal here
If you need help assembling a team of trusted advisors, Pillar Wealth Management has served as the financial advisor on many M&A business sale teams. Because of our extensive experience, we have also forged ongoing relationships with lawyers, accountants, and other members you will need on your team.
If you are planning to sell a San Francisco Bay Area 8, 9, or 10-figure business, ask for our help in creating your team of experts.