One of the first things a buyer and seller will need to do is arrive at a price. The buyer will want to kick the tires before the buyer offers or accepts a price. This means that the buyer will want to see the seller’s tax returns, lease, title reports, envi­ron­men­tal reports, con­tracts, account infor­ma­tion, cor­po­rate or LLC records, licenses and per­mits, patents, copy­rights, trade­marks, finan­cial state­ments, etc. The seller may pro­vide these doc­u­ments and infor­ma­tion under the pro­tec­tion of a con­fi­den­tial­ity agree­ment. This should pro­tect the seller’s inter­est and assuage con­cerns about releas­ing the doc­u­ments and information.

The buyer will be ready to offer a price or con­sider the seller’s price when the buyer has reviewed these doc­u­ments and infor­ma­tion. The price is an art. There’s really no for­mula; well there are for­mu­las, but for­mu­las such as cap rate, book value, and mul­ti­ples of book value only get you in the ball­park. The rest depends on the things such as the terms of the agree­ment, mar­ket demand, whether you’re an investor, whether there is intel­lec­tual prop­erty, the value of good­will, whether the busi­ness has valu­able employ­ees, whether the seller will remain as an employee, how much the buyer can afford, com­pa­ra­ble busi­ness prices, etc. The buyer and seller can also agree to an earn-out agree­ment con­tin­gent on the suc­cess of the busi­ness after the sale.

Over­all, price will be the biggest item in the nego­ti­a­tions. If the par­ties can’t agree on price, then there will be no deal.