Negotiating the Sale of Your Business

Most small business sales involve some back-and-forth on price and terms. You don't need to be a hard bargainer to do well. Knowing your numbers, deciding your limits in advance and keeping every conversation calm and in writing will carry you a long way. This guide covers how to do that when you sell privately.

Decide your numbers before you talk

Negotiation is much easier when you've already done the thinking. Before any serious buyer conversation, write down three figures:

• Your asking price. Based on what the business earns. Our guides to what your business is worth and add-backs and normalized earnings show how to get there.
• Your target. The price and terms you'd be genuinely happy with.
• Your walk-away number. The lowest total you'd accept, after tax and fees, given your other options such as waiting or closing.

Talk to your accountant about what you'll keep after tax at each figure. The headline price and what lands in your bank account can be quite different, especially between an asset sale and a share sale.

Know what you can trade besides price

Price is only one part of a deal. Buyers often care just as much about the other parts, and so should you:

• Cash on closing. How much you receive on the day versus later.
• Vendor financing. Lending part of the price to the buyer. See vendor take-back financing.
• Earn-outs. Part of the price tied to future results. See earn-outs when selling a business.
• What's included. Equipment, vehicles, inventory and the customer list. See selling a business with inventory.
• Your time after the sale. Handover length and support. See handing over your business.
• Timing and conditions. Closing date, financing and lease conditions.

Rank these for yourself. If you care most about a clean break, you might accept a slightly lower price for more cash on closing. If you care most about the total, you might offer a longer handover or a small vendor loan instead of a price cut.

Reading a first offer

When an offer arrives, read the whole thing before reacting to the price. Ask:

1. How much is paid on closing, and how much later?
2. Is the buyer's financing arranged, or still a condition?
3. What conditions does the buyer want, and are they specific?
4. What's included and excluded?
5. When do they want to close, and what do they expect from you after?

Then compare the full package with your target and walk-away number. A short table with each offer in a column makes this much clearer, especially if you have more than one buyer.

Responding calmly

• Reply in writing. Confirm what you agree with, then set out your counter clearly.
• Give reasons. Point to your earnings, assets or customer base rather than how much work you've put in. Buyers respond to numbers.
• Trade, don't just give. If you move on price, ask for something back, such as more cash on closing or fewer conditions.
• Take your time. It's fine to say you'll come back in a day or two after talking to your accountant.
• Keep it friendly. The buyer may become your customers' new owner and your staff's new boss. A good relationship helps the handover too.

Common sticking points

• The price gap. If you're apart on value, an earn-out or a vendor loan can bridge part of the difference.
• Findings in due diligence. Buyers sometimes ask to lower the price after reviewing your records. Being open early makes this less likely. See due diligence when selling.
• Working capital and inventory. Agree how stock and adjustments are counted on closing day. See closing day adjustments.
• A non-compete. Agree a reasonable area and length. See non-competes when selling.

Put the agreement in writing

Once you agree on the main points, they usually go into a letter of intent, and then into the purchase agreement. Check that every point you negotiated appears in the documents in the same words you agreed. Before you start, it also helps to confirm the buyer is serious. See how to weed out buyers.

When to walk away

If the total falls below your walk-away number, the conditions keep growing, or the buyer can't show how they'll pay, it's fine to step back politely. Another buyer, or waiting a few months, may serve you better than a deal that doesn't work.

A note on advice

This guide is general information, not legal, tax or financial advice. Every business and sale is different. Please talk to your accountant about your numbers and have a lawyer review any agreement before you sign.