The Process of Selling Your Small Business: Step Five - Soliciting and Negotiating Offers.
Welcome to Step Five of selling your business on California Business Broker.com. At this point, potential buyers have enough information to move to the next step, which is making an offer. I, as your business broker, will work hard to solicit an offer and motivate buyers to take the next step and make a written offer.
Buyers, if you are reading this, please note, that when properly structured, an offer is essentially risk free. There are numerous contingencies in place which allow you to complete Due Diligence, arrange for financing and take any other steps that are necessary before any money changes hands. In addition, sellers may note that they will also have the opportunity to further evaluate the buyer.
It is important to note here, that an offer may come in the form of an Asset Purchase Agreement, a stock purchase agreement or a Letter of Intent. I discuss these offers and deal structuring further in the section entitled Deal Structuring.
Buyers require enough information to make an informed offer. It is not appropriate, however, for the buyer to conduct a full Due Diligence investigation prior to making an offer. Many buyers want to scrutinize every aspect of the business before they make an offer.
Conversely, sellers typically do not want to provide any information before they see an offer. Deals get done when the buyer and the seller meet in the middle. The seller needs to provide an accurate picture of their business and the buyer needs to then make an offer contingent on verifying that information.
It is is quite important to arrive at price and terms before due diligence. It would be a colossal waste of time if everyone spent days, weeks or even months working through Due Diligence just to find out later that the buyer and seller are miles apart on price.
Every aspect of a business transaction is negotiated. Items that are negotiated may include the price, terms, length of escrow, length of due diligence, contingencies, conditions, earn out provisions, new owner training, value of inventory, value of furnitures, fixtures and equipment, interest rate on the seller's note, terms of the seller's note, the lease if the property is owned by the business owner and as you can see, the list goes on and on. This again is why it is important to have a business broker professional who works on these types of transactions on a day to day basis, working on your behalf.
Once the aforementioned items, plus a few others, have been negotiated and agreed to, the negotiated due diligence period begins. At this point, in most cases, buyer, issues a check for the negotiated deposit amount.
The buyer's offer has contingencies in place which allow for them to conduct due diligence. After due diligence, a buyer may want to renegotiate.
If you are a Southern California business owner and are considering selling your business and you want a business broker professional to solicit offers on your behalf, please contact me.
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