Negotiating the contract
Once the buyer has conducted their due diligence, it's time to negotiate the sale. Negotiating the sale of your business can be stressful, so using a business broker can help. There are many negotiating skills that you can use in this process.
Key points for negotiation
Remember, selling your business is not just about the sale price. There are other important areas that you and the buyers should agree on, including settlement. If the buyer is having trouble securing finance, they might request a longer settlement. If you're in a hurry to leave the business, you might try to negotiate a shorter settlement.
You have a stronger negotiating position if you can promote the handover strategies and after-sale training that will ensure the business continues to operate successfully after the sale.
Potential buyers might also look for a guarantee that you won't open another business that will compete with them after they take over. This is known as a restraint of trade covenant. Your solicitor can help with this clause.
You should also negotiate how much deposit the buyer wants to pay. Typically, a deposit of 10% or more of the purchase price is expected.
Drafting a purchase agreement
Once you and the buyer have agreed on the sale, the buyer's solicitor should draw up a legal contract specifying the sale details. This ensures that both parties understand exactly what each is agreeing to provide and do. Ask your solicitor to explain the terms and conditions of the contract so you know what will change hands, when, how and for how much.
In addition to the basics of price and purchase, contracts for the sale of a business should include provisions to address potential problems that may arise, such as:
- the buyer defaulting on instalment payments
- you providing inaccurate or false financial information
- you having more liabilities than were known at purchase
- you not actually owning some of the claimed assets
- material changes in the business occurring before the transaction of sale is finalised.