Last issue, we kicked off 2025 with the first of a three-part “Selling” series of articles. The first article, “Selling: Enquiry through to inspection”, briefly discussed the initial stages of the selling process, from engaging with a prospective buyer to completing the physical site inspection.

In this issue, we move on to the negotiation stage, leading to the contract phase of the process. At this point, the prospective buyer is interested in purchasing the business based on what they’ve seen so far. The simplest way for a buyer and seller to begin negotiations is for the buyer to make an offer in writing, typically using an “Offer & Acceptance (O&A)” form or similar document. The O&A serves multiple purposes, enabling both parties to clearly outline their terms and work toward an agreement quickly and at minimal cost.

Alternatively, a more formal offer can be made via a “Contract of Sale”. However, this method is more time-consuming and costly to prepare. If no agreement is reached, significant time and money may be wasted. A contract might be used at this early stage if the parties have already had discussions, reached a verbal agreement, and both parties are comfortable to proceed directly to a formal contract.

The negotiation

The negotiation process can be swift or lengthy, depending on various circumstances, such as how serious the buyer is about purchasing the business. A “low-ball” offer might suggest a less committed buyer, while an offer closer to the asking price typically signals genuine interest. The asking price itself can also reflect how committed the seller is to selling. Other factors influencing negotiations include the offer’s terms, such as conditions to be met, time frames, settlement periods, and other contractual details.

Negotiations often involve back-and-forth exchanges as both parties attempt to meet on terms. For example, if a business sells for an oddly specific price, such as $1,000,129, it’s likely the result of a protracted negotiation with a lot of moving parts. Obscure purchase prices are more common in highly emotive transactions. In contrast, business sales are typically less emotional, as they are purely transactional.

The terms and conditions of an offer and contract play a role in determining the final agreed price. Buyers may sometimes make casual remarks or submit offers to ‘sound out’ the seller’s ‘bottom line’. Sellers should avoid engaging in this tactic, as it can put them in a weaker position, allowing buyers to dictate terms. Sellers should never consider an offer unless all terms and conditions are fully understood upfront.

The contract

Once an agreement “in principle” has been reached—whether via O&A or verbally—the next step is to prepare the contract of sale. Most sellers will want their solicitor to draft and review these documents before presenting them to the buyer. Preparing the contract requires detailed information from the seller, their solicitor, accountant, and possibly a financial planner. This includes the O&A document, which outlines the terms of the agreement.

Accuracy is paramount when preparing the contract. This is not the time for a ‘she’ll be right’ attitude. Any errors in the contract can be catastrophic for both parties. Buyers and sellers must thoroughly review and verify all details before signing.

Incorrect information within a contract of sale can be catastrophic to either party.

Once all information has been confirmed, and any outstanding matters from the O&A document resolved, the contracts are ready for signing. Upon signing and dating, the buyer is required to pay the deposit to the stakeholder. At this point, the contract is “on foot,” and the process of contract management to ensure settlement commences.