Selling a business involves several pricing issues, timing considerations, and flexibility during the process. Here are the key points to keep in mind:
1. Price Negotiation: Once you set a sale price for your business, it is unlikely that a buyer will offer more than what you’ve asked for. As the buyer learns more about your business, both its positive and negative aspects may come to light, which can impact the perceived value. Therefore, it’s important to move quickly and efficiently during the sales process to minimize any potential negative events that could lower the value and price of your business.
2. Timing: Timing is an essential factor in selling a business. It may be beneficial to wait for a better market condition or an upswing in your industry before selling. By timing the sale strategically, you can potentially maximize the value of your business and attract more buyers.
3. Post LOI Flexibility: After receiving a Letter of Intent (LOI) from a prospective buyer, serious discussions about the terms of the contract can take place. However, it’s important to note that flexibility in negotiations decreases once the LOI is signed. Therefore, you should be prepared in advance, understanding which terms of the sale are negotiable and to what extent.
4. After-Tax Proceeds: Selling a business creates a taxable event, and taxes can significantly impact the amount of money you receive from the sale. Instead of focusing solely on the sale price, it’s crucial to consider the after-tax proceeds. By working with a financial planner and your professional team, you can design a deal that may result in higher after-tax proceeds, even if the sale price is lower.
5. Non-Price Factors: While the sale price is important, other non-price factors also contribute to the overall value of the deal. Elements such as escrows, earnouts, representations and warranties, indemnifications, and other terms and conditions can significantly impact the overall value and financial benefits for both the buyer and the seller.
Selling a business is a complex transaction that requires careful planning and the guidance of a trusted team of advisors. Working with professionals who have experience in business sales can help you navigate the process successfully and achieve the best possible outcome.