When business owners start thinking about selling their company, the first question is often straightforward: What is my business worth?
It is an important question, but it is not the only one. In many transactions, how the deal is structured is just as important as the headline purchase price.
A buyer offering the highest number on paper may not necessarily be offering the best transaction.
Price Is Only Part of the Deal
Imagine two buyers offering the same price for a business. One offers to pay the full amount in cash at closing. The other proposes that part of the price be paid over several years based on the future performance of the business. Those offers may have the same headline value, but they carry very different risks for the seller.
The same is true where a buyer asks the seller to retain an ownership interest, provide vendor financing or continue operating the business after closing.
Understanding these differences early can help a business owner evaluate an offer based on its real economic value rather than simply the number appearing at the top of a letter of intent.
Consider What Is Actually Being Sold
Another important question is what assets should form part of the transaction.
A business owner may own valuable real estate through the operating company. In some circumstances, a buyer may want the property. In others, the owner may prefer to retain it and lease it to the business after closing. The business may also contain different divisions, product lines or assets that have different strategic value to potential purchasers.
There is no universal answer. The right structure depends on the business, the buyer, tax considerations and the owner’s objectives after closing.
A Sale Doesn’t Always Mean Walking Away Completely
Private equity and other financial investors have also created more alternatives for business owners who want liquidity without necessarily giving up their entire interest.
An owner might sell a majority interest while retaining an investment in the company. That can provide some liquidity today while allowing the seller to participate in future growth.
For other owners, certainty may matter more. They may prefer a clean sale that provides maximum cash at closing and allows them to move on to the next stage of their lives.
Neither approach is inherently better. What matters is matching the transaction to the owner’s goals.
Start With Your Objectives
The strongest sale processes generally begin before the letter of intent arrives.
An owner considering a transaction should think about questions such as:
- Do I want to retire or remain involved?
- How important is certainty of payment?
- Do I want to retain the company’s real estate?
- Would I consider keeping an ownership interest?
- How important is preserving the existing management team or company culture?
- What tax and estate-planning issues should be addressed before a sale?
Those questions can influence who the best buyer is and how a transaction should be structured and negotiated.
Creating the Right Deal
Selling a business is rarely just about negotiating a purchase price.
A well-designed transaction considers price, payment terms, tax consequences, retained assets, ongoing involvement, risk allocation and the owner’s longer-term objectives together.
Thinking about those issues before negotiations become advanced gives business owners more options — and often puts them in a much stronger position when the right buyer arrives.
If you’re considering a sale, connect with Pitblado Law for tailored guidance. Our team can help you evaluate your options and navigate the negotiation and transaction process. For a confidential discussion, please contact:
Partner
204.956.3572
Note: This article is of a general nature only and is not presented as a comprehensive review of the law or as being exhaustive of all possible legal rights or remedies. This article is not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice applicable to their own circumstances. We do not undertake any obligation to update this article to reflect changes in law that may occur in the future.