egy is going forward and a whole bunch of other variables — is
important so they can position their company in the minds of
the buyer to make them look attractive.”
While communicating with key management employees
and external stakeholders can be a sticky subject during ne-
gotiations to sell a business, Johnson maintains it needs to be
done, albeit selectively, as each has a stake in the company and
shouldn’t be left out in the cold.
He recommends that sellers try to get key employees on
board fairly early in the negotiations, if the sale is made public.
That might mean locking them in with a management or employment agreement.
While there may be an economic cost to such contracts, the
seller has to compare that to the potential consequences of losing the employees at an inopportune time, he notes.
For Johnson, the letter of intent—usually drafted by lawyers—is a pivotal document in the negotiating process because once signed it gives the buyer exclusivity and an upper
hand in the deal.
“Anything that was not clear or ambiguous in the letter of intent is subject to negotiation so the buyer has the advantage.”
Although it’s essential for sellers to put their best foot forward in negotiations, Johnson cautions they must also be able
to back up claims they make about their company.
In their initial zeal to attract potential buyers, many business
owners fall into the trap of making statements that cannot be
supported, such as overestimating the near-term financial performance of the business, which can cause them problems in
the long run, he says.
In many instances, sellers will prepare sales forecasts for buyers, but by the time the deal closes the purchaser will be able to
compare the projections against actuals.
“If you miss those numbers you lose your credibility,” he says.
“If you lose credibility you lose your negotiating position.”
According to Chisholm, credibility on the part of the seller is
paramount in every deal because statements at the negotiating
table that aren’t backed up by evidence will come to light once
the buyer’s advisors begin their due diligence.
“If you’ve lied or overstated in one area then the buyer will
wonder how much you have lied or overstated elsewhere. The
buyer then becomes more defensive.
“If you’re not as clean as you think you are or you’re making
false statements it does play out in terms of a grind in value
credibility or structure of the deal, where they may defer some
payments, because that’s typically the leverage the buyer would
have after the deal is done.” END
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