As I play in the startup game longer, a few of my clients have progressed from where they’re not just starting their businesses, but rather selling them as well. It’s fun to see the whole cycle play out – but it’s created a unique set of challenges for them and for me.
One of my favorite clients recently decided he wanted to sell his business to move on to another venture. Unlike many small businesses, this client was careful to set up his business properly, with a detailed shareholder plan that provides well-crafted rules for selling the business. His life would have been much more complicated had he not taken the time to do that, but because he had, the process would move forward much more smoothly.
Originally, when he mentioned he wanted to sell the business, he had talked to a number of different interested buyers. So far, so good. Then, as negotiations progressed, he focused on the terms of the deal with one buyer. We drew up the paperwork and went back to the buyer. Without warning, after orally committing to one price, the buyer dropped the initial price he had planned to pay for the stake in the business. And then he renegotiated the terms to the payment. And then he wanted to add a few extra-strict representations to the sale that would have encumbered by client unfairly.
And on and on it went. What my client had anticipated would be a quick and easy stock sale turned into a massive ordeal. It reached a point in the negotiation, where my client had no choice but to back out and start talking to other interested parties again.
- The first rule of selling your business is not to get married to the first person that expresses interest in buying your business.
- The second rule of selling your business is to generate as much interest from as many interested parties and let the interested parties know that others are interested.
As long as you are honest and up front about this, and you have not committed to negotiate with exclusivity, this is perfectly acceptable and appropriate. It’s no more unethical than shopping around for different brands on Amazon.
And, in the same way that you wouldn’t want to only explore one option when buying a car, so too you wouldn’t want to just explore one option when selling your business. Otherwise, you have no leverage in the negotiation and will only have one choice – to sell or not to sell. And, if you’re in a position where you really want to sell, this makes a negotiation with one party a dangerous and often untenable position.