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.