"Whether you are selling or buying a business, it is a certainty that you will reach a point in the process where you are faced with a decision to press commercial terms that are in your favour, and in turn damage the relationship with the other side."
Whilst the commercial terms may be in your favour, how could a damaged relationship impact both of you after the business is sold, and where is the right balance?
At Vision Brokers, we are big believers that the negotiation of commercial terms should take place in the context of allowing an ongoing and positive relationship between the two parties. Provided that the ongoing relationship will benefit the business directly or indirectly through its staff, customers, suppliers and core values.
"If a negotiation is framed as a contest, there is only a winner or loser and the loser is going to conclude they are not valued by the winner. Thus, the chances of a relationship become very slim."
In contrast, should negotiating to preserve a relationship be a hard and fast rule, if it means being deprived of commercial terms that are important to you? Absolutely not, if you are prepared to walk away and cut ties with the other side. Some people are just built this way, they negotiate to win and they will sleep like a baby taking comfort in the spoils of their victory. This is a more common approach seen on the buyer side.
Other people use good faith as their primary currency, to them a business transaction is not a contest, it is a collaboration and they recognise that with a valued relationship, comes the confidence to overcome issues in the future. This approach is more commonly seen on the seller side, and often the relationships that their business has with its entire ecosystem are also built on this type of good faith. This can be incredibly challenging for a win at all costs type of buyer to contemplate.
All of this can then become incredibly blurred once the deal progresses to the stage of getting lawyers involved. Lawyer’s will more commonly take the view that contracts and terms need to account for every definition of every hypothetical outcome, so there is no misunderstanding later.
"There could be a list of commercial terms a Lawyer will recommend being in place to mitigate a myriad of potential issues connected to staff, customers, suppliers, equipment, licensing, leases, to name a few."
Though does this approach solve problems, or does it create the sources for the disputes later? If there is a positive relationship between the Buyer and Seller, would they not be empowered to overcome any issues if they arise without exercising a formal dispute process?
The problem with creating contractual solutions for every hypothetical scenario is that they are made at a fixed point in time, before the sale is finished and they can quickly become obsolete, as perspectives of buyers and sellers naturally evolve very quickly after the business sale is complete, and often the contractual solutions written before the deal is done, don’t account for these variables further down the track.
We believe that the best approach is in fact to develop the relationship between a Seller and Buyer as the primary objective when negotiating commercial terms. Failing this being possible, we then work through each commercial term and map them by importance. When you look at which terms are important to a buyer, and which terms are important to a seller it becomes clear where common ground can be found.
If there simply is not enough to establish common ground and bring the commercial terms and relationship back on track, then we need to look at the deal very seriously to determine, if there is going to be a loser in the deal, and are the losses unacceptable to the extant that calling the deal off becomes necessary.
It is extremely rare that this would occur, if the sale is being managed by an experienced Business Broker. In fact helping a Seller and Buyer navigate the mind field of commercial terms is a Business Broker’s primary function.
If you are having difficulties closing your deal, take the commercial terms off the table for a moment, and think about how you could improve your relationship with the other side. A great place to start can be a face to face meeting.
Happy buying and selling!
Daniel Kogan
(m) 0401 620 918
(t) (02) 8923 2632
Dan Levitus
(m) 0450 326 146
(t) (02) 8923 2632