Selling your business should work like a good play: You should put your best, most engaging actors onstage and keep the people handling the messier details of the deal behind the curtain. In my opinion, the lawyers should remain offstage until you agree to a set of business terms with the acquirer.
It's tempting to let your lawyer be the 'bad cop' in the early stages of negotiations, pounding on the table, demanding better terms. However, coming to an agreement on the core business terms before the lawyers get involved will ensure a positive foundation that will serve you well when the legal teams inevitably reach loggerheads on some of the finer details.
One of the biggest hurdles in coming to an agreement on the core business terms is drafting a simple letter that outlines the deal in language both parties understand. It's hard not to get mired in the details and document every conceivable possibility. If you get bogged down, take inspiration from Warren Buffett.
Buffett is the master of writing about business in plain English. When Buffett tries to buy a company, he approaches the CEO with a short, plain-spoken letter before any of the deal-makers get involved. Read Buffett's annual letter to Berkshire Hathaway shareholders if you find your correspondence with a potential acquirer becoming too technical.
Here are a few things to work out with an acquirer (in plain English) before you get the lawyers involved:
- The cash on closing (what you get the day the deal closes)
- The earn-out (or vendor take-back) you are agreeing to, along with a clear understanding of what budget and resources you have at your disposal to meet the goals you're signing up for
- What happens if you decide to leave or the buyer asks you to leave before the earn-out or transition period is over
- The working capital in the business at closing (how much money needs to be left in the company the day it changes hands)
- Your salary and benefits when you become an employee of the acquirer
- The degree of decision-making autonomy you'll have as an employee during the earn-out or transition period (e.g., Do you get to decide what technology platform to use? Do you control decisions around marketing and selling? How about hiring and firing?)
If you can agree to a set of business terms, you'll be building a good working relationship with your acquirer, which will be important once you become a division of their business. Besides, if you can't come to an agreement on the basic business terms with a buyer, no two lawyers will be able to agree to the legal terms, which are infinitely more complex.
So follow Buffett's lead and get the basics down in plain English before you invite the lawyers onto the stage.
John Warrillow is the author of Built to Sell: Turn Your Business into One You Can Sell. He has started and exited four companies. Most recently John transformed Warrillow & Co. from a boutique consultancy into a recurring revenue model subscription business, which was acquired by The Corporate Executive Board. In 2008, he was recognized by BtoB Magazine's 'Who's Who' list as one of America's most influential business-to-business marketers.