Selling a business involves negotiations of different matters that call for proper and adequate consideration. If you are a buyer or seller, understand what are common items to negotiate in a business sale so as to avoid an unfair deal that may bring more problems later. Price and payment terms, intellectual property, and employee agreements, among others, will discussed on what must covered between the two parties in this blog.
What Are Common Items to Negotiate in a Business Sale?
Most business sales involve several items besides the selling price. The following are some of the most common items included in most negotiations.
1. Price and Payment Terms
Whereas price is one of the most popular items, terms of payment will be almost as important.
- Pay Over Time vs. All Cash: Will the buyer make the entire purchase price at once, or will the payments spread out over time.
- Earnouts: The price can be partially conditioned on the company meeting specific financial and performance goals following the sale.
- Financing Terms: Sellers may agree to finance all or part of the purchase price of the business with the buyer this must negotiated.
2. What Assets Shall Be Sold
Parties shall specifically agree as to which assets shall be sold. Things that need negotiation include the following:
- Tangible Assets: Plant and machinery, stock, office equipment, and land/property.
- Intangible Assets: Trademarks, Patents, Copyrights, and Customer List.
- Excluded Assets: Assets that the seller shall keep and meant for retaining in its original possession, such as personal vehicles or any special equipment.
3. Liabilities and Debt Assumption
It should be determined who will assume the liability of any outstanding liabilities.
- Existing Loans: Is it that the buyer will assume the outstanding loans of the seller, or the seller pays the loans.
- Pending Court Cases: Determine who is responsible for outstanding and future court cases.
- Accounts Payable: Determine which party will pay off the outstanding supplier invoices on behalf of the seller.
4. Non-Compete Agreements
Non-compete agreements are particularly meant to restrict a seller from competing with the buyer. Items to negotiate are:
- Duration: How long should a seller not launch a competing venture.
- Territorial area: Which are the geographical locations where the seller cannot operate.
- The nature of a business: Types of businesses or businesses the seller should not venture with
5. Staff Retention Packages
Staff or employees are major assets of the company; hence negotiation for it post-sale would be vital.
- Retention package deals: Key persons are staying, aren’t they.
- Benefits Transition: Health insurance and retirement plans must transfer with the buyer.
- Severance Packages: Discuss severance with employees not retained after the sale.
6. Intellectual Property and Confidentiality
Proprietary knowledge and intellectual property are components of a company’s worth.
- Transfer of Ownership: All the intellectual property rights should transferred to the buyer.
- Confidentiality Agreements: Both have to agree to confidentiality of sensitive business information.
- Licensing Terms: Bargain if the seller has any licensing rights.
7. Transition Support
One area for an easy transition is for the success of the business post-sale. Other items to bargain for include the following:
- Training Period: Should the seller assist the buyer as he transitions and train him, also.
- Introduction: Sellers introduce buyers to top clients, suppliers, and stakeholders.
- Being a Consultant after Sale: Sellers engaged for sometimes as consultants to the buyer after the sale.
8. Contingencies and Due Diligence
Contingencies protect the interests of both the selling and buying parties.
- Due diligence period: It provides some time to scrutinize books of accounts, contracts, and other documents for the buyer.
- Approval financing: Sale may be contingent on the acceptance of financing by the buyer.
- Compliance: ensures that the business is within its legal and other regulatory requirements.
Benefits of Clear Negotiations
- Eradicates misunderstandings: The risks of litigations after sales minimized.
- Gains Trust: Open communication during negotiation creates an atmosphere of mutual trust among two parties.
- Extracts Maximum Value: Both the seller and buyer can get what they want.
Common Challenges in Negotiate a Business Sale
While understanding what common items to negotiate in a business sale helps, challenges can still arise:
- Emotional Attachment: Seller is often hard-pressed to forego his business.
- Over Valuation: Differences about the value of the business stranding negotiations.
- Legal Matters: Numerous nuances surround a contract and regulatory adherence.
Conclusion
A business sale negotiation is not just agreeing on a price. From assets and liabilities to employee agreements and intellectual property, knowing what are common items to negotiate in a business sale is very important for buyers and sellers. A good transaction may result from a thorough and candid discussion of these factors.
Read Also: Why Was There Tension Between Business Owners And Workers
FAQ
It depends on the mutual understanding agreed upon by the seller and the buyer. In general, liabilities are negotiated and incorporated into the sales agreement.
Sellers may offer training, introduce the buyers to stakeholders and provide consulting to ensure a seamless transition.
No, buyers and sellers negotiate which assets included. Some assets, such as personal property or unrelated equipment, may excluded.
Indeed, due diligence ensures that buyers make an informed choice by assisting them in evaluating the company’s operations, compliance, and financial health