When selling a business, negotiating from a position of strength is critical to maximizing your outcomes. Similar to selling a house, once an offer is accepted and due diligence begins, the balance of power shifts. The buyer gains leverage, and you are less likely to walk away from the deal. It’s important to stay in control of the process before reaching this stage.

Key Components of Negotiating Posture

• Control Through Information

  To maintain negotiating power, you must have strong control over your business operations. This involves regularly updated management reports, providing you with accurate insights into your business performance. A business owner who is well-informed can present data confidently, making it clear they understand the value and potential of their company.

• Growth is Essential

  Growth is a fundamental aspect of a successful negotiation. Although buyers may claim they are not purchasing the future, the reality is they are. They may say they are only buying based on current cash flow, but growth potential is what justifies a high EBITDA multiple. For instance, I had a client whose business grew by 15-20%, and every meeting with the buyer involved highlighting that month’s growth. Despite claims that growth wasn’t factored into the deal, it was clear they were paying a premium based on future potential. The client’s consistent upward trajectory made them more valuable.

• Planning for Continuous Improvement

  Having clear, actionable plans for marketing, operations, and administration is crucial for positioning yourself strongly. Buyers want to see how you plan to sustain and enhance growth:

  • Marketing Plan: This should demonstrate how you intend to continue growing the business and reaching new markets.
  • Operational Plan: Show improvements in efficiency that can increase profitability.
  • Administrative Plan: Highlight improvements in information control and management, even though these are typically less important.
• Due Diligence Readiness

  It’s vital to anticipate and prepare for the questions that will arise during due diligence. For example, one of my clients imported parts from China and India, which improved margins but raised questions about sustainability and operational efficiency. By being ready to address these concerns, you reduce the buyer’s leverage and demonstrate that you’ve thought through the business’s complexities.

  Another client faced margin erosion after expanding into larger markets. Selling to hospitals and large buying groups required deeper discounts, which initially concerned buyers. However, by explaining that the client was still bringing in more revenue overall, we satisfied the buyer’s concerns and maintained a strong negotiating position.

• Clear Understanding of Desired Terms

  Finally, be clear on your personal goals for the deal. Do you want to roll over equity and retain a stake in the company, or are you looking for a clean exit? Are you planning to stay with the company post-sale, or do you want to step away? These factors should be communicated early in the process to ensure the buyer understands your motivations and expectations.

In summary, maintaining a strong negotiating posture requires preparation, control, and clear communication. By understanding the value of growth, having detailed plans for all aspects of the business, and being ready to answer difficult questions during due diligence, you can negotiate from a position of strength and secure the best deal possible. In our next discussion, we will delve further into issues such as rollover equity, contracts, and motivational concerns.