Losing the sale or purchase of a business at the last moment is extremely frustrating for everyone involved. Whether you are selling or buying shares or assets, here are six “easy to fix”, simple tips which may prevent this from happening.
1. Making sure the deal is understood and agreed.
The terms of the deal, following negotiations between the parties, are set out in either heads of terms (HOTs) or by way of a letter of intent. These documents should set out the buyers’ offer as clearly as possible. Even if the seller has a good agent acting as a go-between in the negotiations, ensure that these documents are unambiguous. This allows your professional team to make suggestions as to the best way to structure the deal and ensure the proposed deal meets the seller's expectations, such as timing, special or unusual conditions, and most importantly, how, when, and the amount of money being paid for the shares or assets.
2. Focusing on payment terms
As mentioned above, the most critical aspect of any negotiation is the payment. This includes whether the payment will be made in cash at the time of completion or post-completion, and how much money is being paid. Often, deals are based on a formula which works on future profits and performance. As a Seller, assess how much control you will have of the business to ensure the targets are met. And if they are met, what is the risk of the Buyer not being able to pay the amounts payable to the Seller? Work with an accountant to run different scenarios, attaching figures to them, so that you can understand potential outcomes!
3. Prepare for due diligence.
There should be no surprises when the buyer undertakes the due diligence process. This involves a forensic examination of the legal and financial issues of the business. With asset purchases, those enquiries would usually be limited to the assets being acquired. However, for the purchases of shares, due diligence is a far more detailed and intense process, as the buyer is taking on everything that the company has - or has not – done since its incorporation (registration).
To avoid last-minute problems, the seller must ensure that the due diligence process does not uncover any unexpected issues. Many of these things can be dealt with in advance, sometimes even before putting the company or business up for sale. For example, issues such as missing employment contracts, lack of internal policies, or overdue filings at Companies House can be resolved well before the company is marketed and offers are invited.
4. Maintaining open communication
Once the letter of intent has been signed and the matter passed on to the lawyers, ensure that both your accountants and lawyers are kept well informed of ongoing discussions and negotiations.
While this is often done between parties, if an open dialogue is not maintained with your professional team, problems can arise. For example, any changes or agreements with the buyer would not be accurately reflected within the transition documents. Miscommunication can be fatal.
5. Prioritise face-to-face meetings and avoid relying on technology.
Wherever possible, conduct negotiations in person. These are commercial transactions, and the most effective negotiations take place face to face. Body language and the right atmosphere in the room increase the chances of success and reduce the risk of miscommunication, which can lead to breakdowns in negotiation and the failure of the transaction. If in-person meetings are not feasible, video conferences are a good alternative. Avoid relying on emails — they are often too blunt and can turn minor issues into major problems through misunderstanding.
6. Your professional team matters – choose the best team for you.
Finally, choose the right professional team to support you. Select advisers who not only provide technical, legal, and tax advice but also understand the commercial aspects of the transaction. A team that appreciates both parties’ perspectives is essential to ensure the buyer and seller remain aligned. By doing so, you increase the likelihood of achieving the common goal: a successful sale and purchase.
By following these six “easy to fix” tips, you can increase your chances of closing a deal successfully.
