HOUSTON BUSINESS REVIEW

Tutorial On Selling Your Business: “More Fundamentals on Selling” – Part I
By Ralph Fain

Ralph Fain is a principal in the R/ Fain Group, a professional business brokerage firm which confidentially represents the interests of sellers/ buyers of “Mainstreet to Mid Market” companies (revenues from $1MM to $25MM). Mr. Fain has over 20 years of broad business experience with Fortune 500 companies as well as with small/medium sized companies and has served in various capacities including Controller, Vice President, and President/CEO. Each week he will provide comprehensive information on the many aspects of buying/selling businesses.

We have been discussing some of the basics of selling a business – topics encompassing preparing the business for sale, selecting advisors to assist you with the sale, enhancing the value of your business, business and asset valuations, marketing your business, finding and qualifying buyers, maximizing the saleability of your business, etc. Today’s article continues with that same thread – fundamentals of selling a business – and picks up after the identification of a qualified prospect.

Once there is a qualified prospect for the purchase of your business and there have been discussions with the candidate regarding your company’s history and other company specifics and you have ascertained his seriousness, business experience, financial qualifications, etc , it’s time to take the process to the next level – negotiating and closing the sale. Prior to finalizing the terms/conditions of the transaction, it is incumbent upon the seller to devise both a negotiating strategy and negotiating tactics. Below are some helpful hints:

- Know what you want to accomplish and always keep the major points in mind. Is price the most important consideration to you or is minimizing your future liabilities/risk exposures more important? Are you willing to make a trade-off between price and the minimization of risk? Are you looking for continued and permanent association/employment with the new owners or are you looking to completely walk away after a reasonable transition period? Know what your end game is and focus on achieving your most important goals and objectives.

- Just as important as having a game plan for yourself is putting yourself in the buyer’s shoes. Listen to what the prospect is saying (not just his words but his meanings and motives) and try to understand what it is he is trying to accomplish and what is driving him or her. Knowing what the other party really wants and what is/is not critical to him/her will give you a distinct advantage in negotiating.

- Do not think for a moment that you will get everything you want in the transaction – it may not hurt to ask but it’s not going to happen, so know that going in. Negotiation, by definition, is a give and take process; strive to attain your major goals/objectives and be willing to concede minor issues. You will not win every battle, so be flexible – just make certain you win the war!

- Leave your emotions at the door- it’s not personal, it’s just business! Yes, we know this company is your “baby” and that you have a lot of emotional investment here; but, as we discussed in our earliest articles, having made the decision to sell, you should be over any emotional hurdles at this late stage. Do not let emotion get in the way of a successful and profitable sale.

- Do not talk the deal to death or get mired in insignificant details. Avoid “over-negotiation.

- Be prepared to walk away from the negotiating table. If you can’t make the sale except under unacceptable terms/conditions, turn down the offer. Don’t be afraid to walk away. Conversely, avoid “false” bluffs –don’t threaten to cancel a sale unless you mean it. If possible, explore middle ground positions prior to walking way from the table.

- Lastly and most importantly, be honest and ethical in your dealings/negotiations with potential prospects. Anyone can gain the upper hand through misrepresentation and/or duplicity – life’s too short for this! Negotiate honestly and ethically but from a position of strength; after all, the final decision to sell is yours and, in that regard, you hold the most important cards.


See you next time in this space when we will discuss additional fundamentals and basics – Letters of Intent, Purchase Agreements, Non-Competes, and Due Diligence. As always, should you have any questions or require additional information please feel free to contact the R/ Fain Group at 832-646-0832 or via our web site.