If you have built a business worth selling, you probably think you're a good negotiator. But selling your business takes negotiation to an entirely different level. It's more intense, more time-consuming, more stylized and, in general, more personally momentous than any other negotiation you've conducted. Getting the best results from selling your business demands a combination of speed, predictability and coordination. Time is precious: Every day that passes can mean distractions from your business or a buyer change-of-heart. Predictability is equally important. Surprises can kill the deal or--at a minimum--offer your buyer an opportunity to renegotiate the price.
It's tempting either to micromanage the process or to abdicate responsibility to the "professionals." Instead, you need to be proactive and strategically focused; constantly relating present issues to your overall goals. You must consciously place tactical decisions--what to do and when to do it--in a larger context. You must also anticipate future issues, so that they can be addressed at the best time and in the most appropriate manner. The question should not be "What is happening that requires my attention?" but "What can I do to achieve what I want?"
Proactive negotiation is not some esoteric concept--it's mostly common sense. These 10 commandments for proactive negotiation in selling your business may seem simple, even obvious, but they are surprisingly hard to follow:
- Start early. Start focusing on a sale at least a year before you start meeting with buyers. You will likely need time to reposition your business to be more attractive to potential buyers, to demonstrate that your business can be managed more profitably, to eliminate potential liabilities or weaknesses and to find the right buyer or to implement estate planning. Investing the time in these activities can dramatically boost your sales price as well as your chances of closing a deal.
- Build your team. To sell your business, you may need lawyers, investment bankers, accountants, estate planners and other specialists such as environmental, Employee Retirement Income Security Act and tax advisers. Find advisors with small-business experience and with whom you think you will be comfortable in the heat of the negotiations, then make sure that you and they all work together as a team. Pick your advisors early, because early advice usually costs little but yields big results.
- Know your business. You need to understand the strengths of your business. But it may be even more important to identify and understand its weaknesses, such as misstated inventory, tax problems, contract/permit assignment issues, intellectual property concerns, environmental cleanup, management succession, etc. You will greatly enhance your position if you give the buyer a solution at the same time he learns of the problem. Start by having your advisors review your business as if they were representing the buyer.
- Know what you want. Know what you want before you get an offer. Understanding how you will feel after selling your business can be hard. Be realistic; since you probably won't get everything, be ready to make the almost inevitable tradeoffs. Determining your relative priorities (cash, a job, freedom from future liabilities) can take time and focus. Distinguish between your goals and the means to accomplish them. For example, maximizing your after-tax proceeds is a goal, but fixating on the means of capital gains is not always the best means to the biggest profits.
- Know your buyer. Identifying each potential buyer's needs and priorities can allow you to determine the best buyer, position your business to attract that buyer and optimize your tactical decisions to close the deal.
- Take charge. Know your tasks, but anticipate the buyer's tasks as well. Agendas matter; get your interests on the table in a way that accelerates the process, enhances the outcome and minimizes disruptions and delays. Keep the pressure on, but make sure you do so in a way that does not offend the other side.
- Pick your moments. Because negotiation is as much emotional as it is rational, timing is not important--it is critical. While this is true in every negotiation, the size and complexity of sale transactions can make timing even more essential. Sometimes bringing up issues early will increase your prospects; other times it could dissuade a potential buyer from proceeding. Choosing the right moment to raise an issue not only affects the rhythm of the deal, but also which advisor on the other side addresses the question.
- Keep your head up. Don't get lost in the present: Anticipate what will happen in the future. Distinguish the truly important from the mundane distractions. Focus on the next phase of the transaction before you get there.
- Finish strong. Don't treat the closing as the end of your deal. Post-closing adjustments, escrows, representations/warranties and employment issues may deserve the same level of attention from you and your advisers they would have gotten if they happened prior to closing.
- Control yourself. Find the right balance between micromanaging your advisers and negotiators, and letting them do what they believe to be in your best interest. In general, you will not be the best negotiator. Even if you are capable, and even if you can avoid your ego getting invested, your role as a principal inherently limits your tactical options. You can't gain time for thought and reflection on the grounds that you don't have authority. You can't indignantly disavow a failed trial balloon as an adviser's mistake. The biggest challenge to your self-control is often frustration. Don't overreact to surprises or delay: Every sale has its hiccups. Stay calm, stay focused and give yourself enough time to understand each issue and its strategic implications. Then respond quickly and confidently. All too often, sellers want to just take the business off the market to stop the pain. Alternatively, you may feel like giving up points--any points--just to get the sale completed. Paradoxically, yielding easily may simply signal desperation--and just invite more demands. Keep your eyes on the goal and stay the course. If you have developed a good proactive negotiation plan, stick to it.
Theodore E. Guth is a partner at the law firm of MANATT, PHELPS & PHILLIPS LLP in Los Angeles and the chair of Manatt Business Select, an innovative client-centered approach to practical and creative business legal services with a transparent cost structure.