Sale Price & Negotiating Terms with a Buyer
A potential purchaser of your business may want to negotiate not only the purchase price but also deferment of part, or the entire, purchase price to a date following the sale and possibly contingent on certain events.
For example, the buyer may not want to pay the asking price in one lump sum when it has been calculated on an estimation of future profits (which may or may come to fruition). Alternatively, a buyer may want you to make part of the purchase price contingent on your working in the business for an agreed period of time following the sale to assist with hand over.
Agreeing that the purchase price (or part of) is to be payable at a later date creates two problems:
- Firstly, legal documentation will be more detailed as both parties will want to bring in protections: for example, if deferment of the price is contingent on achieving profits each party will want to clarify how profits are to be calculated.
- Secondly, you may never get the ‘promised’ funds either because the contingent event does not occur or because the buyer reneges on the deal.
It may be possible to take some form of security for example over machinery, or guarantees from the buyer’s bank. It would though be preferable for funds to be lodged in an account which can only be released upon the instruction of both you and the buyer.
Much depends on conducting a cool and measured negotiation with clear parameters in your mind as to what you are prepared to agree. If the buyer is keen and you are in the stronger position stick to the terms you want.
If you are unable to shift the buyer from wanting to defer payment of the purchase price give serious thought as to whether to accept a lower sum in return for the entire purchase price being paid on the date of sale. Not only will the sale process be less complicated but you will negate the risk of not getting what you thought you had bargained for – potentially finding yourself worse off than if you had accepted a lower sale price. In any scenario where payment is deferred you are vulnerable: nothing beats having the funds in full on the day of sale.