If we’re armed with an objective valuation of our business, understand our worst case scenario and we have our three essential business selling numbers (walk away or minimum price, target price and asking price) then we’re ready to talk to potential buyers, right? Nope. Don’t talk to a buyer yet without a couple of legalities, specifically agreements on the potential buyer’s part not to compete or circumvent, not to disclose information and hold it confidential, as well as return any materials. These are legal agreements which most brokers will insist upon from any potential buyer. Unfortunately, many do-it-yourselfers overlook these items at a high cost.
Don’t talk to a buyer yet
Non-compete and non-circumvent
This is not the same as a personal agreement not to compete with the buyer when the business sells. Rather, this agreement is where the prospective buyer agrees that they will not circumvent the sale by taking your information (equipment lists, employees and/or account information) and go into direct competition with you should a sale not occur.
Couple of thoughts. Non-competes, in order to be enforceable, require a specific time period. Failure to cite this usually invalidates the agreement as does having too long of a period (99 years for instance).
It should specify the parties to the agreement including personal guarantees of the potential buyers, not just the corporate entity. And it must also specify competing in what industry or trade within what specific area. The more specific the more enforceable it tends to be. And area is of particular importance. It’s hard to justify a non-compete for the city of Los Angeles if present customers make up 99% of the business and are located within five miles of you.
All this obviously requires you to have an attorney involved to create an enforceable agreement. Spend some money here. And remember, courts usually don’t favor non-competes as they are essentially a restraint of trade so be sure to have a knowledgeable attorney involved. Again, most brokers are well aware of these items and have agreements which may cover you but even then, have your attorney review.
Non-Disclosure and Confidentiality
During the selling process, we certainly don’t want news of the potential sale being public as it may scare significant customers, employees and/or vendors. This language gives you the right to sue for compensation if a prospective buyer reveals inappropriate private information to third parties or use it in a detrimental way.
The agreement also often prohibits making copies of the data or having others, except close advisors having access to the records.
Return of Materials
This is a rather straight-forward and self-explanatory agreement often contained within the Non-Disclosure and Confidentiality agreement but deserves special mention.
This is where the potential buyer agrees to return all information provided to review the business without retaining copies, summaries, analyses or extracts in the event the review is terminated. Again, it is another item to protect you.
Now, once you have these agreements signed by a prospect, then you are ready to begin negotiation. Remember to look for win-win situations, know your worst case scenario; and have your three numbers handy (walk away price, target price and asking price). If you have those then you’re ready to negotiate.
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Receive daily email training messages as well as have access to our short (8 to 10 minute) printing-specific training classes on product knowledge and selling through the new CPrint Academy. $495 for a year’s subscription covers everyone in your shop. Go to www.cprint.com for more information. Message Tom at tom@cprint.com or reach him at (304) 541-3714, connect on Facebook and LinkedIn and follow his business tweets on Twitter @tomcrouser. Tom is Senior Contributing Editor of this magazine, chairman of CPrint® International and principal of Crouser & Associates, Inc., 235 Dutch Road, Charleston, WV 25302, www.cprint.com.
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