What Is Negotiable When Selling a Business?
How to Negotiate Transaction Documents in Small Business Sales
In any M&A deal, negotiating the transaction documents is a critical step. These documents outline the terms of the sale, define each party's responsibilities, and protect both buyers and sellers from potential risks.
Key Transaction Documents
Purchase Agreement: The main document outlining the sale terms, including price, assets being transferred, and liabilities being assumed.
Representations and Warranties: Statements from the seller regarding the business’s condition. These can cover everything from financial statements to IP ownership and legal compliance.
Indemnification Clauses: Protect the buyer by specifying how the seller will handle any legal claims or liabilities that arise after the sale.
Negotiation Tips
Understand Both Sides’ Goals: Successful negotiations require understanding both the buyer’s and seller’s motivations. Buyers want to mitigate risks, while sellers want to ensure they aren’t held liable for issues beyond their control.
Focus on Material Adverse Effect Clauses: These clauses protect the buyer if something significant negatively affects the business before the deal closes.
Stay Flexible: Be open to compromise to avoid derailing the deal over minor issues.