The Key to Selling a Business
As you probably know or heard, getting an offer to sell your business is not the toughest part of business sale transactions – addressing all the concerns and finding solutions to bring this offer to a close are! I was not born a salesperson, but the one thing I quickly understood when I first got into business sales a decade ago was that focusing on quickly identifying and fully understanding any concerns from both the buyer and the seller was in fact the key to my success and the #1 reason why I had a higher than average sale closing ratio!
I cannot recall how many times I was told: "Nathalie. it’s impossible to close this deal!" but closed the deal anyway! The secret? After having identified and understood the buyer’s and the seller’s concerns, using my imagination, negotiating power and knowledge to address these concerns by ALWAYS coming up with win-win solutions. I do admit it’s most often easier said then done but the word "IMPOSSIBLE " in just NOT in my dictionary! There is no such thing as a problem that cannot be solved; there are only solutions to be found!
For example, one day I ended up working on the resale of a franchise where time and options were clearly running out - actually just a few weeks away - and so was the seller’s chance of retiring with a large portion of her well-earned money, sitting in the value of her business.
1) the deadline to renew the franchise agreement was fast approaching;
2) the franchisee was NOT AT ALL willing to commit to a renewal of the franchise agreement other than with an "unconditional offer to purchase" in hand before the franchise renewal deadline, because this meant committing to providing the franchisor with a personal guarantee to operate the business for 5 more years if the business did not sell quickly;
3) the buyer’s lawyer would not allow him to remove his conditions on the offer before getting confirmation of the rental rates of the lease renewal and confirmation of an amendment to the lease to have at least 1 x 5-year option to renew;
4) the franchisor was on the head lease and the franchisee had therefore no control on the negotiations of the terms of lease renewal and it had become clear that the franchise renewal deadline would expire before the rent renewal rates would be known;
5) not finding solutions to these problems meant the seller losing most of the hard-earned retirement money that took years of work to earn, which for me meant failing
was just not an option! I was going to succeed - or die trying!
Problem #1: Future rent increase :
After considering that an increase in rent meant:
a) a decrease of the Seller Discretionary Earnings (SDE); and
b) since a business usually sells based on a multiple of the SDE, also a decrease in the value of the business…
Using the same multiple of the SDE that the initial offer price was based on (the "Selling Multiple"), I proposed that we resolve this issue by adjusting the sale price with a formula: the average amount of the 2 first years of the "annual basic rent increase " multiplied by the Selling Multiple. I knew from experience that the buyer’s lawyer would not like the use of the formula unless his client was further protected hence also proposed that the seller’s lawyer hold back a certain amount of the sale proceeds to cover the possible sale price adjustment (if any) until the terms of the lease renewal were finalized and the amount of annual basic rent increase known. SOLUTION #1 - ACCEPTED!
Problem #2: Uncertainty in obtaining an option to renew the lease :
Considering that removing conditions prior to having a lease renewed meant the following possible risks for the buyer:
a) paying higher rent as part of the lease renewal to obtain an additional 5-year option to renew the lease; or
b) not obtaining an additional 5-year option to renew the lease and entering a new lease in 5 years with higher rent higher than the rental market rate; or
c) having to move the business to a new location in 5 years if the landlord and him could not agree on a new lease.
To address this problem, I asked the buyer if there was an amount of money by which the offer to purchase price could be reduced for the aforementioned risks to be acceptable to him. The buyer came back with an amount and when presented to the seller, the latter felt that this option was much safer than committing to a new 5-year franchise agreement while not knowing if the buyer would actually buy the business or risk losing her ability to sell the business at all. SOLUTION #2 – ACCEPTED!
And this is how ADDRESSING CONCERNS WITH WIN-WIN SOLUTIONS turned this "IMPOSSIBLE" DEAL into a " CLOSED " DEAL!
Nathalie Lacroix is a Vice President at VR Business Brokers in Edmonton. Nathalie specializes in helping entrepreneurs in buying and selling their business. You can reach her confidentially at firstname.lastname@example.org. Alternatively, visit our website to learn more.