Like with many other negotiation types, final price is often the major sticking point in a business sale negotiation. There are many cases where the business seller and buyer will have agreed on all the major term areas for the sale, but there’s still a gap in terms of the final price itself.
At Utah Business Consultants, we’ve seen this situation for many of our past business sales. We provide quality busines sale and exit planning services for a wide variety of business clients, and we’re experienced with circumstances where the parties are trying to bridge a price gap to finalize a given business sale. Here are several themes often considered for bringing the two sides closer together in these situations.
In cases where real estate was a planned part of the original deal, there may be options where the seller chooses to instead hold onto ownership of the real estate and rent the premise to the buyer. This allows the real estate itself to be removed from the price of the transaction, often allowing buyers who were a bit short on the required funds to make up the difference easily.
In some cases, the buyer can choose to pay a higher rent total than would actually be required. This is viewed as a goodwill portion of the sale. Also, sellers may choose to retain building titles, machinery or other equipment and lease it to the buyer under similar circumstances.
Another possible theme for buyers who don’t have the full purchasing price or cannot agree on a total will be the buyer only acquiring portions of the business rather than 100%. A buyer may purchase 75% of a seller’s stock, for instance, plus an option to buy further stock based on pre-set agreements. The seller retains their share of profits and earnings, while the buyer can complete the process in two or even three or more steps.
There are other situations where a royalty setup will be introduced. This can be structured based on factors like revenue, gross margins, EBIT or EBITDA.
In other situations, the buyer will look to acquire only the fastest-growing portion of the business in a subsidiary. Both buyer and seller will share in profits for this part of the business while the full payment waits in limbo, and will be fully transferred to the seller when the original transaction is paid in full.
Finally, one of the cruder but effective methods of bridging a price gap in a business sale is to simply remove certain assets from the equation. Particularly if there are non-business assets or other real estate that aren’t a central part of the acquisition, these can often be easily enough removed to arrive at an agreement.
For more on how to bridge a price gap between buyers and sellers during a business sale, or to learn about any of our business valuation or exit planning services, speak to the staff at Utah Business Consultants today.