Helps to develop a negotiation strategy
By Clifton B. Clark
(Oct. 25, 2016) — If you are a business owner or entrepreneur considering buying or selling a business, you may want to consider involving your team of professional advisors early in the process. Consulting with your lawyer and accountant early in the process will help ensure that you develop a negotiation strategy most likely to achieve your long-term objectives and identify issues that can derail tentative deals if not realized until parties have hardened their views on value.
Each year hundreds of business owners across Kentucky sit down to discuss the terms upon which the parties are willing to make a deal. Quite often the parties will negotiate the basic terms of the transaction prior to consulting with their professional advisors regarding the tax and legal issues involved. Unfortunately, once negotiations have progressed to the point where one or more of the parties believe they have reached a gentlemen’s agreement on the terms of a transaction, it is usually difficult (if not impossible) to renegotiate these terms when unexpected tax and legal implications subsequently arise. Valuable time and resources are often lost in the process.
To avoid this unnecessary cost and expense (or potential loss of the deal itself), parties should consider consulting with their professional advisors early in the process – well in advance of drafting any term sheet or letter of intent.
If you are considering the purchase or sale of a business and are not already familiar with the acquisition process, you may want to first meet with your lawyer and accountant to discuss your plans and solicit their input and recommendations. Such meetings help ensure that these professionals have an adequate opportunity to provide necessary advice and input on the front end, and facilitate subsequent documentation of the transaction and compliance with tax reporting obligations following the closing.
You should provide your lawyer and accountant with sufficient information to enable them to clearly understand your goals and objectives and the nature of the transaction you are considering. Be sure to mention not only the price you are willing to accept or pay for the business, but also the terms of payment and any material conditions to closing. You should be sure to discuss your future plans: such as whether you will remain actively involved in the business, invest in another business, retire, or accept employment in the same or a different industry.
Once you have provided your professional team with the necessary background, have your attorney provide you with a brief outline of the various steps involved in the acquisition process. During this discussion, your lawyer should be able to identify for you the major advantages and disadvantages of the various forms of business acquisition and explain how specific issues (such as the ability to assign material contracts, licenses or permits, and securities law concerns) are implicated under each structure.
Similarly, your accountant should be able to help you identify those facts and circumstances that are unique to your specific situation (or the business itself) that may have a material impact on the analysis. For example, if the business has certain loss carryovers that will affect the net (after-tax) proceeds of a sale, this can significantly alter the bargaining power between the parties and provide you with an opportunity to negotiate a more favorable deal than you might otherwise be able to obtain.
By consulting with your professional advisors early in the acquisition process you will be able to arm yourself with the knowledge and resources you need to develop a negotiation strategy most likely to achieve your long-term objectives. Although even the best laid plans will typically have to be altered somewhere along the way, it is always a more pleasant experience to find yourself modifying a well-conceived plan than to realize that some material issue was overlooked due to a lack of initial preparation on the front-end.
Clifton B. Clark is a member of Jackson Kelly PLLC law firm practicing its Lexington office. He can be reached at [email protected].