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A key worry for potential buyers is the possibility that you are selling up because of some imminent problem they do not know about. To protect themselves from this risk buyers sometimes try to tie the price to future profitability. By linking the two, the buyer is reducing his risk and making you gamble on the business continuing to perform well. This sort of arrangement, known as 'earn-out' or 'contingency payments' may be appropriate if you are staying on to help run the business. If an 'earn-out' is acceptable - and it may be if you feel bullish about future performance - you need to establish your negotiating position in advance. How long do you want the earn-out to last? Do you want to be paid partly as a bonus for the remaining shares? Understand the tax implications for both sides and what works best for you.
What contingent risks are you prepared to accept to protect the buyer's future exposure? Most buyers will be looking for you to indemnify them against undeclared liabilities. If there are any awkward issues that can undo the deal or weaken your position, you want them out in the open before the negotiating meeting. Don't spring nasty surprises on a buyer as you are negotiating price. He won't like it.
By listing objectives and mapping out your meeting strategy you significantly increase your chances of concluding a successful negotiation, one where you achieve what you want. Without these objectives you have no way of measuring the deal to know if it is a good one.
Build in flexibility
While you have been preparing for the meeting, your buyer and his advisors will have been doing the same. If there is a large gap in the expectations or objectives of the two sides, the meeting will be a difficult one and a deal less likely. To stand a better chance of succeeding, your objectives need to be realistic and to have some flexibility. You will need to win concessions from the buyer and must be prepared to give some in return. Negotiating is a game where players trade off or compromise on differences between their starting positions. Some of your positions, your bottom price for example, will not be negotiable so you will need to have other stances that can be traded in return for movement from the buyer. Planning in flexibility gives you the option of letting your buyer win points during the negotiation while you quietly achieve your principle objectives. In a good negotiation, even one that is bruising at times, everyone leaves satisfied that they have won something.