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: Depending on the sales price you decide upon and the desirability of
your business, you could have buyers fighting over the business within
a few days. Under certain circumstances it is good to have multiple
buyers. In other predicaments, it is better to have a single buyer you
are negotiating with. In past sales situations, pinning one buyer
versus another in an auction type scenario has resulted in disaster,
with both buyers walking on the business. Rather than having one buyer
go up against another, evaluate the buyers individually and negotiate
with the buyer you and your professional team consider the best
possibility for the highest purchase price. Seller confidence is often
a very potent negotiating tool. The secondary buyer can be used as a
back up if the negotiations with the first buyer don't work out.

The Transition Companies: Discount for lack of marketability

Another factor to be considered in valuing closely held companies is
the marketability of an interest in such businesses. Marketability is
defined as the ability to convert the business interest into cash
quickly, with minimum transaction and administrative costs, and with a
high degree of certainty as to the amount of net proceeds. There is
usually a cost and a time lag associated with locating interested and
capable buyers of interests in privately-held companies, because there
is no established market of readily-available buyers and sellers. All
other factors being equal, an interest in a publicly traded company is
worth more because it is readily marketable. Conversely, an interest in
a private-held company is worth less because no established market
exists.

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Prospecting the Buyer

Potential buyers should be screened to ensure that their interests are
compatible with yours and that they have the financial ability to
purchase your business. Early in the selling process, you should
determine the buyers' sources of funds. Determining and dispelling any
misconceptions on financing prior to negotiating the deal saves both
parties time and money. You may want to suggest that the buyer consult
with their accountant or financial advisor.

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Buyers sometimes insist on a noncompetition clause as well. "The
noncompete agreement is a fair clause in any sales contract," wrote
Semanik and Wade, "because it prevents a seller from opening across the
street (or town) and winning back the customers." This covenant not to
compete with the buyer, which can be incorporated into the purchase and
sale agreement or created as a separate document, usually stipulates a
market area and/or a period of time (three to five years is common) in
which the seller may not open a business that would compete with the
enterprise that he or she previously sold. (The Transition Companies article)

Locating Prospective Buyers
Another option sometimes available to business owners is to sell their
company to "internal" buyers—employees, business partners, or family
members. Selling to employees through employee stock ownership plans
(ESOPs) or other arrangements are particularly attractive for business
owners because they accrue significant tax advantages through such
sales. Employees interested in assuming ownership of the company via a
management buyout (MBO) could range from a single key employee, such as
a general manager who already has a good grasp on many aspects of the
enterprise, to a group of employees (or even all of the company's
employees). "This is fertile territory," claimed Tuller. "Most
employees yearn to have their own business. All employees are concerned
about someone else buying the company and either being fired, or not
being able to work for the new boss." Employee convictions that they
could improve on the owner's performance often play a part as well.
Finally, noted Tuller, "when it comes time to finance the sale, bankers
will bend over backwards to assist a [management buyout], although they
might not be interested at all in an outside buyer." MBOs that rely on
external financing, however, typically require that one or members of
the purchasing group have management training in all aspects of the
business; if such expertise is lacking, the seller will need to
implement a training schedule for one or more employees to fulfill this
requirement.

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Jurisdiction in case of a dispute. If you are the disclosing party, you
want to make sure that if there is any dispute as to whether the other
side has lived up to its obligations, then the dispute will be handled
exclusively in your city. You don't want to have to travel far away and
incur additional costs to enforce your Confidentiality Agreement. (The Transition Companies online article)

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