Selling a business is always an exciting time in your life. Your efforts for all of those years are now going to be rewarded with a nice payout! It only makes sense to accept the absolute highest price for your business, or does it?
More often than not, if you receive an offer over and above your asking price, it usually comes with ‘conditions’ that in some way could reduce the chances of actually receiving the full amount as agreed.
At Business Sold, we hear this story far too often which nearly always ends with the sale falling over. A hand shake deal is not enough!
Always get a legal team to go over the conditions of the agreed purchase price prior to signing any contracts. Find out exactly what the potential buyer is requesting you do as part of their offer.
If they are asking to much on your part, you maybe happier with a lower price.
Make sure you do your home work and find out exactly how much tax you will be up for when finding a buyer at your asking price. The higher sale price, the higher the tax bracket this number could put you in, hitting you right in the hip pocket. It could be the difference between paying 20% up to 40%. Ouch!
Potential buyers will try to stipulate their own buying terms. For example, they will put down a small cash payment upfront, usually around 25% and then request to make smaller payments during the first 12 months until the dept has been paid in full.
This lowers their risk greatly and their initial outlay, while putting you at a greater risk of not receiving the agreed price in full, and over a much longer period of time.
Some other conditions a buyer might try to implement are:
- reaching set sales figures;
- guarantee customers do not drop off;
- staff remains employed.
These are terms you seriously want to consider and get legal advice on.
The upside is that you would receive a higher sale price it came to fruition.
Keeping You Employed
Sometimes we make rash decisions when we have a big carrot dangling in front of us, which is why you need to take your time and choose your buyer wisely. A potential buyer will sometimes want to keep you employed at the business you are selling for a year or two to basically baby sit the new owner and keep things running smoothly.
For an increased sale price, plus a salary to stay on board might sound like a good idea at the time, but remember why you are selling in the first place. If you just want out, staying on board would be a mistake and don’t forget, you will no longer be the boss!
You will be required to sign a contract and if you break that contract, the additional fees for the sale price won’t have to be paid.
It’s a high risk, high reward situation and you really need to consider all aspects of the offer.
Sometimes it might be more rewarding to take the lower offer when you have found a buyer for your business and walk away.