Selling – Negotiation through to Contract
- Posted By Andrew Morgan
Last issue we kicked off 2025 with the first of a three part “Selling” series of articles. The first was titled “Selling – Enquiry through to Inspection” which discussed in brief, the initial part of the selling process with a prospective buyer through to completing the physical site inspection.
This issue we move onto the negotiation through to contract stage of the process. So essentially at this point, we have a prospective buyer who likes what they see to date, and is interested at a given level to buy the business. The simplest way for both a buyer and seller regarding commencing the negotiation is via an offer being made by the buyer in writing, utilising an Offer & Acceptance (O&A) form or similar document. This O&A can serve many purposes and enables both parties to lay their cards on the table, to assist in reaching an agreement within a shorter period of time at minimal cost.
As an alternative, an offer can be made via a Contract of Sale, however this will take more time and cost to prepare. It is a more formal method of making an offer, however if no agreement can be reached from this contract, there will have been a lot of wasted time and money to get to this point. The use of a contract at this early stage may occur if those involved have had discussions and a verbal agreement has been reached. The intention then may be to skip the O&A document and go straight to contract if both parties are comfortable with each other to do this.
The Negotiation
The negotiation process may be quick, or long and protracted, depending on many circumstances. One of these circumstances may be, how serious the buyer really is in purchasing the business. A “low ball” offer for example may indicate interest more on the low side, however an offer closer to the asking price will more likely come from a more genuine buyer. The actual asking price will play a role here, and alternatively, can indicate a seller’s interest in selling the business also. Other factors may include terms of the offer such as conditions to be met and their time frames, settlement time from contract date, and numerous other matters relating to the contract and its terms.
The back and forth within the negotiation can also relate to each party and their willingness to meet on these terms. If you see a business has sold and the settlement price was for example, $1,000,129, you can envisage that there was quite a lot of back and forth involved to come to such an obscure number. One can only think it may have been a long and protracted negotiation with a lot of moving parts. You will most likely see obscure purchase prices more so with those transactions that are highly emotive. Business sales generally have less emotion involved as they are just that, a business transaction.
The terms and conditions of the offer and contract will no doubt play a role in this final agreed price. Often buyers can make throw away lines regarding making an offer and simply put forward an offer price to try to “sound out” a seller in an attempt to expose their bottom line price. This is never a good practice to engage in from a seller’s point of view, as it backs oneself into a corner on price, then allows a buyer to dictate the terms and conditions of the offer. An offer should never be considered by a seller unless the terms and conditions are fully known upfront.
The Contract/s
Once an agreement “in principle” has been reached (via Offer & Acceptance or verbally), it is on to preparing the Contract/s of Sale. Most sellers will want their solicitor to prepare these documents and then review them before being issued to the buyer. The information required to commence drafting the contract/s of sale will need to be provided by the seller, their solicitor, accountant and in some cases financial planner. This will include the O&A document outlining the terms of that agreement.
Without stating the obvious, it is imperative that all the information provided to prepare a contract of sale, including the O&A document is accurate. It is not the time for flippancy or a “she’ll be right” attitude at this point. Incorrect information within a contract of sale can be catastrophic to either party. Both buyer and seller should check and double check the information within is correct, prior to signing.
Once the contract documents are all accurate and any matters not covered off within the O&A document have been agreed to and concluded, the contract/s should be ready for signing by all parties involved. Upon signing and dating, the deposit associated with the contract/s is due and payable by the buyer to the Stakeholder. The contract/s is now in place and “on foot”, and the process of contract management to ensure settlement results, commences.