Exit planning: Bidding and final negotiations

(October 2007) You have invested a tremendous amount of time and effort to build your business and, most likely, you’d prefer to sell it to someone who will continue to make it successful. Having the right mindset, and list of appropriate considerations available while you review offers and negotiate, will help you find the right match for your practice.

As a seller, it is important to use a screening process that measures prospective buyers on two levels. First look at how serious a prospect is about buying your business, then look at how the prospect will fit into the business structure and environment you’ve created. • Is the prospect really interested in buying at this time? • Does the prospect have the financial ability to purchase your business? • Will your clients and staff interact successfully with this prospect? • Does the prospect have the professional competence to service your clients? This screening process ensures that you only speak with prospective buyers who are serious about buying and making the transition successful for you, your clients, and your staff.

Reviewing presented offers From a seller’s perspective it is ideal to have several offers. Answers to these questions and others will help you analyze each offer and provide the focus needed for negotiation. • Which prospects have the skills and ability to continue your business? • Are their down payments large enough? Are the terms adequate? • Do the prospects have good credit? During the next phase it is important to understand how the issues you identified during the due diligence process impact both the buyer and seller — each will need to be successfully planned for and negotiated. Both the seller and buyer must focus on their objectives at this stage, respond to concerns diplomatically and attempt to obtain a benefit for every concession they make during the process. You should both be prepared to walk away from the deal if it is unreasonable.

Negotiating the deal While price is certainly a factor, the real deal is made during a series of “give-and-take” negotiations over taxes, financing considerations, the seller’s continuing role, client communications and other transition details.

Be prepared to negotiate sensibly. Where arguing is about trying to prove the other person wrong, negotiation is about finding solutions. When negotiation turns into a situation where each party is out to prove the other one wrong, no progress gets made. If you disagree with something, state your disagreement in a gentle but assertive way that avoids demeaning the other party and avoids potential power struggles.

More Exit Planning

• Building your own retirement plans • Transitioning best practices • Knowing what you want • How much is your practice worth? • Successfully reaching qualified buyers • Doing your due diligence • Bidding and final negotiations

It is particularly important to avoid rejecting an offer without giving it serious consideration just because the full asking price has not been offered or because the deal looks different than scenarios you envisioned. The right buyer may be more important than a higher price, especially if there is seller financing involved. The offer may also have other good points to offset the purchase price — higher rates or payments, a consulting agreement, a better buyer or more cash.

Before entering into a negotiating session, prepare some options that you can suggest if your preferred solution is not acceptable. Anticipate why the other person may resist your suggestion, and be prepared to counter with yet another alternative.

Next: Five styles of conflict and assessing your negotiation capabilities.

If you must counter-offer, do so only on those points that are really critical to you. Be flexible and willing to negotiate on the important points. Many sales fall apart because either the buyer or the seller becomes stubborn, usually over some minor detail, and refuses to bend. At this point in particular, it helps to understand the five styles of conflict.

Five styles of conflict

Competing • Competing parties stress their positions without considering opposing points of view. • Negotiators are highly assertive and show a minimal amount of cooperativeness. Their goal is to win. • This style is frequently used in situations where noncompetitive behaviour can be exploited or when a person needs to take quick action, is in the habit of taking quick action, making unpopular decisions or handling vital issues. Avoidance • Does not satisfy your concerns or the concerns of the other people involved. • Conflicting parties show low assertiveness and low willingness to cooperate. The goal, in this case, is to delay action. • This style is used with issues of low importance to reduce tensions, or to buy time. Compromise • Compromise finds a middle ground by forgoing some concerns and committing to others. • Usually involves moderately assertive and moderately cooperative participants with the goal to find middle ground. • Both parties are equally powerful and equally committed to opposing views.

Accommodation • One party forgoes their concerns in order to satisfy the concerns of others. • This style is used in situations where parties want to show that they are reasonable. Also used to develop performance, create goodwill, keep the peace, retreat, or for issues of low importance. The goal is to yield. Collaboration • Collaboration aims to satisfy both sides. • Collaborators are highly assertive and highly cooperative. The goal is to find a “win/win” solution. • Collaboration is used when learning, merging perspectives, gaining commitment, integrating solutions and improving relationships. Assessing your negotiation capabilities Keep in mind that you have more vested in this plan than any other plan you’ve created before and that the skills needed here are very different than those you’ve made use of with clients.

More Exit Planning

• Building your own retirement plans • Transitioning best practices • Knowing what you want • How much is your practice worth? • Successfully reaching qualified buyers • Doing your due diligence • Bidding and final negotiations

Since negotiation and the ongoing relationship between buyer and seller are crucial to the well-being of your practice, consider retaining an expert to help if your negotiation skills are not top-notch.

Rate yourself — Can you:	A = Highly capable B = Need some assistance C = Need expert help
Communicate effectively?
Remain flexible and creative in pressure situations?
Recognize where your power lies and use it effectively?
Disclose information selectively to make the most of it?
Remain logical even as emotions start running high?
Handle conflict effectively?
Use a structured approach to prepare for and manage the negotiation process?
Use your understanding of conflict styles positively?

While every deal involves numerous hours dedicated to the refinement of terms, it really is all about the clients. A successful deal structure is one where both the buyer and seller are keen and able to work together for a period of time to ensure the client needs are appropriately addressed. At the end of the day, having the right match is the real key to the entire process of successful exit planning.

Cindy Jenner Cowan is vice president of training and development at Worldsource Financial Management. With more than 17 years of experience in the financial services industry, the expert in relationship management and value-added coaching recently developed FRAMEWORKS, a training program for Worldsource advisors, focusing on advisory practice life cycles. For more information please visit www.partnerwithWFM.com. You can also contact Cindy directly at (604) 376-9119 or cjennercowan@worldsourcewealth.com.

(10/16/07)