How to Effectively Negotiate the Sale of Your Software Business
The first step in successfully negotiating the sale of your business is to clearly define and prioritize what you want out of the transaction. As an Owner-Operator, you’ve spent decades building your business and realize that maximizing liquidity is not your sole motive. Your employees, customers, products, and the legacy of your brand all require your consideration.
Here are three steps to effective negotiation during an acquisition:
Step #1: Valuation
Sophisticated and specialist buyers will often communicate a valuation range for the business after a few discussions and examination of financial data on hand.
In this early stage, it is important for the seller to communicate their intangible “must haves” has they can have a material impact on how the buyer values the business. Remember: If you receive an offer that satisfies these “must haves” but falls short on valuation, don't shut the doors. Rather, determine why it fell short and if there a way to bridge the gap. The buyer’s view of the business going forward may be different from yours for legitimate reasons.
Step #2: Letter of Intent (LOI)
When it comes time to negotiate the LOI, ensure all terms are well defined in a single comprehensive document. This stage will involve determining a future business plan and outlining key terms that fabricate the transaction.
One of the best practices which Volaris follows is to include a section titled “Principal Assumptions” in the LOI. This section will reflect our view of the business based on the information provided, and serves as a basis to ensure that there are no misunderstandings between the two parties. These assumptions are key to driving our valuation, so by communicating these early, any misunderstandings can quickly be cleared up.
Step #3: Legals and Closing
With a well-defined and mutually agreed LOI, closing the transaction will be a smoother process, where diligence is confirmatory (not exploratory) and the key terms of the definitive agreement have already been agreed to. Because of our in-depth LOI process, we have a track record of closing substantially all of the LOIs that we sign.