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Understand your 'non-negotiables' - Know what you want to make a deal

by Connie Lannan

Arlin Sorensen, partner and founder, Oak Road Consulting, Harlan, Iowa, who participates in a peer group with Dan Crowley, founder and president, Peer Executive Groups, Coopersburg, Pa., recently highlighted in his “Thoughts from the Farm” blog items that a seller usually has that are “true” or “non-negotiable.” Some of those items Sorensen says that can be on the “non-negotiable” list include:

1. Price. Know the number but share a range.

2. Stock vs. asset sale. Do you require one or the other? If so, do you know the why?

3. Deal structure. Are there requirements around cash/escrow/owner note/earn out/stock?

4. Earn out/performance bonus/vendor takeback. Are there requirements around how you would be willing to have some of the proceeds based on performance?

5. Reporting. What rhythm, metrics and measures do you require as it relates to the impact on deal outcome — performance related?

6. Asset classification. Are there requirements for how the assets will be classified across the seven different taxation types? Is there a huge tax impact?

7. Due diligence. Are there requirements for who will execute and pay for this, and the timeline it will be done?

8. Integration. Are there requirements around the people, process, timeline, execution and budget related to integrating the business?

9. Working capital. Do you have expectations around the amount of working capital to be left in the business and any excess money in the company?

10. Complete transition vs. partial ownership. Do you want to have an entire transition or do you want a “second bite of the apple” by retaining some amount of ownership?

11. Platform vs. add-on. Do you want your company to become a platform or are you willing to be an add-on to an existing platform?

12. Timeline. Is there a firm date by when the close needs to occur? (This can be due to tax law or other personal factors.)

13. Post transition involvement. Do you want to stay engaged post event and if so in what manner, for how much and for how long?

14. Non-compete. Do you have requirements around the length and breadth of a non-compete you would sign?

15. Board of directors. Do you require a seat on the board of directors and if so for how long?

16. Management/leadership. Do you require that you or your team remain part of the executive leadership team or management team? If so, in what positions?

17. Employees. Do they all need to be part of the transition? Do you have any requirements around any of your staff?

18. Culture. Are there cultural elements that need to be retained and honored, such as family focused/fun/employee-centric, etc.?

19. Customers. Are there markets or customers you want to be sure will continue to be served?

20. Solutions. Are there products or services you want to assure will continue to be delivered?

21. HR policy. Are there specific policies you require to be carried into the new company, such as vacation, unlimited PTO, training, etc.?

22. Tenure. Do you expect the tenure of your team to be carried into the new company?

23. Contracts. Do you expect the new owners to take responsibility for all contracts that are in place?

24. Licensing/other interests. Are there things you want to be able to continue to use or do that are not directly related to the business you are transitioning?

25. Core values. Are there deep held beliefs and values that you want to assure are part of the new organization?

26. Benefits. Are there current employee benefits you want to be continued?

27. Shareholders. Are there specific requirements from your stakeholders that must be met?

28. Work conditions. Are there requirements for how employees will be allowed to work — office vs. home vs. anywhere?

29. Communication. Are there any requirements related to how things are communicated to team, family, customers, vendors, community, etc.?

30. Emotional impact. Are there requirements to help reduce the impact on you or your team, such as getting to know the new organization/dinner with spouses, etc.?