Creative deal terms with seller stuck on price?

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September 10, 2024

by a searcher from Western Washington University - College of Business and Economics in Seattle, WA, USA

Have been in discussions with a seller for several months and negotiations have recently come to a standstill. We have built a really good relationship to this point and both sides want to move forward but we are not aligned on one item - price (not a surprise). The seller has chosen not to use a broker and have not gotten a 3rd party valuation of the business. This seller has also shared that they have had several failed attempts at selling the business because of price. Looking to the SF community for any ideas or creative ways to negotiate terms to get around price to continue moving forward with this seller. Happy to connect with anyone directly to share more details and potentially use to help get the deal done - please DM me if interested.

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Reply by a searcher
from University of North Texas in San Antonio, TX, USA
^redacted‌ while I can't provide any legal or accounting advice, it sounds like you've built a solid relationship with the seller, which is a great starting point. When price is the sticking point, I’ve found that structuring creative deal terms can help bridge the gap. Here are a few ideas you might consider: -Seller Financing: Offer to pay their price over time with a portion of the deal seller-financed. This could ease their concerns while giving you some flexibility. -Earn-Outs: Tie part of the price to the business's future performance, allowing you to pay more if the business hits certain revenue or profit targets. -Equity Holdback or Retention: If they want to stay involved, let them retain a small equity piece. This aligns both parties for future growth while keeping upfront cash lower. -Deferred Payments: Structure payments over time based on cash flow, helping manage your risk if the business underperforms.

Additionally, while negotiating, consider investing in a business evaluation yourself. It’s a worthwhile expense that can protect you by providing an independent assessment of the business’s value.
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Reply by a searcher
from Georgetown University in Boulder, CO, USA
From a distance, it sounds like there *might* be two motivations at play, independently or together.

1) Ego - maybe the seller has an unreasonable/unjustifiable price in mind because of attachment to the business or the need to have a certain public number for their sale. Address this by addressing the ego elsewhere in the terms (branding, announcements, industry awards, etc). If you've already presented BVR data that counters their price rationale, and their other negotiations have failed because of unrealistic expectations on price, it's also possible their ego won't actually even let them sell at all. Move on.

2) Financial Needs: Perhaps the seller has a minimum amount they need to realize in the sale in order to maintain their lifestyle. Have you explored tax-favorable alternatives like an annuity structure, instead of lump-sum? Paying a higher sales price over a longer period of time allows a top line price to be less expensive on an annualized basis. Stay in it - get creative to grant a higher price.

From a distance, it sounds like you need to dig deeper to get better clarity into the seller's motivations and needs, then craft terms to match.
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