From time to time, our clients will have opportunities to buy or sell a business. They may be expanding or wanting to merge into another larger company. Our clients will ask "how do you do it?" It seems our clients believe there is a right way to buy or sell their business, when in reality, there is no 'how.' Knowing how to buy or sell a business is so open ended that the answer to the above questions is always "it depends."
It depends on so many factors between the buyer and the seller. You can create a purchase or sale to look any way the two parties want it to look. I believe it's such a hard thing to understand because it is so open and creative. Buying or selling a business is truly a practice in negotiation when two unrelated parties (the IRS places restrictions around RElated parties in these transactions) come together to craft and define what is best for each party.
The practice can be very long, or rather quick, depending on the complexity of the agreement. The agreement could begin with discussing whether key team members will move to the new business, and end with negotiation around including the office furniture in the deal. The two parties could discuss making cash payments for the business, or even craft an agreement that includes no cash changing hands. Anything is game for the negotiations.
Some tips when buying or selling a business:
- If you aren't working with caring people in the negotiations you could find yourself spinning your wheels and getting nowhere. You need some kindness going into these negotiations, or you may experience one party running all over the other party. This is a win-lose, and it doesn't work.
- I suggest that you not enter into negotiations with another party that is unclear about what they want. These situations usually lead to frustration and ultimately no deal. These negotiations require a lot of precision, so both parties need to know exactly what they want (or will give up) during the negotiations.
- There are legal ramifications to these transactions. You need to consult an attorney before you get too far into the buy/sell negotiations. A new entity may be created, or an old entity may need to be shut down. The legal side can protect both parties so that there are no hurt feelings after new operations begin.
- There are possibly tax implications to these negotiations. The selling party could be subject to capital gains on the sell of their stock. You'll want to know this BEFORE the transaction takes place. For example, if a seller produces a tax liability during the transaction, it is wise that the seller also negotiate getting some cash in the deal so they can pay their tax bill.
You don't have to avoid complex transactions like buying and selling businesses, but they require a lot of care in their negotiation. Just be ready for what this due care will require of you. Do the work necessary to make them successful. Success requires being clear as to what you want, and patience in negotiating with humans.comments powered by Disqus