“I’m torn between accepting a Google cash offer or that VP role at Facebook”

… mumbled the somnambulant entrepreneur, dreaming of great riches ahead.

Well, it’s a nice dream for the valley rock stars but what about the rest of us, swimming upstream against a strong head current and aspiring to our own vision of what an exit might look like?

What’s the deal about deals?

The 1st and most important thing to do with this article is, completely forget it. Treat these 800 words as a ‘snapchat’ article … that dissolves within seconds of being read?

Because entrepreneurs who gets fixated with exit, are those who start to take their eye off the ball. What really impacts on sale price is driving value in the business.

Deal structures emerge from deals created by value and often timing that is individual to the strategic imperatives of the buyer i.e. what is the value of buying your business at this moment in time, for that particular buyer?

Essentially, every deal is different and every negotiation is bespoke.

So what are the common contributory factors and how do they spill over into potential deal structures?

Prepare Early

Forget about price or multiples, focus on having your business ready for sale at anytime. Understand the value drivers of your business and focus on embedding those ever deeper into its fabric.

>See also: Acquisitions: how to make a successful deal

When going to market, get the best advisors, with a track record in your sector and who can see the good deal wheat, from the bad deal chaff.

Good preparation helps drive best price and put you in a position of strength when negotiating the  deal.

Understand What You Need

Don’t stress about deal structure until you’ve got someone willing to discuss a deal but understand in advance the impact and likelihood of different deal structures.

Share sale vs. Asset Sale?

Earn out, deferred payment, stock options?

What makes most sense – financially and emotionally?

What is the impact of accepting low cash now, stock options later? Even if the stock options looks like an amazing deal today, what is the certainty they deliver tomorrow?

Will you want to keep working on and for your baby, if it’s now in the hands of a corporate? Can you comfortably transform from employer to employee?

Understand What the Buyer Wants

Try not to enter the sale process with inflated expectations and/or a failure to recognise the risks being faced by the buyer. The smaller the business, the more these expectations tend to be out of kilter with reality (often via bad advice).

Deal structures – particularly those with earn out and/or deferred elements – are partly introduced to help iron out risk and uncertainty inherent in buying businesses, particularly smaller and/or owner dependent ones.

When the owner walks out of the door, how much value follows them?

3 types of deal

There are essentially 3 types … Asset Sale, Share Sale, Merger.

– Asset Sale

Buyer acquires assets they want from the acquired company such as goodwill, contracts, IP, property, plant etc.

What is and isn’t included and calculating their value is all part of the negotiation but asset sale is a cleaner structure for the buyer and often involves less transaction costs.

The sale and purchase agreement is often less complicated however third party approval often creates late tripwires in asset based sales so all parties should organise asap.

The seller must check in advance the tax implications as there might be a double tax charge with an asset sale.

– Share Sale

The entire business, assets, liabilities, warts and all are sold which, by virtue of the uncertainty involved for the buyer, often requires a more detailed due diligence process and lifting of the corporate bonnet.

Sale and purchase agreement tends to be more detailed and a source of considerable anxiety, where further negotiation is often centred around the buyer needing protection in the form of warranties and sellers trying to minimise exposure to the same.   Transfer of title is much simpler when it’s a share sale but, the unknown creates greater uncertainty.

>Related: 10 free apps every entrepreneur needs

Negotiations around warranties and indemnities is an example of no matter the headline price, the white heat and breaking point of a deal is often during this phase.

Share sales generally provide the advantage of being more tax advantageous to the seller.

Should I Stay or Should I Go?

Very rare to achieve a cash deal so the question is often about terms for the key people to stay.

You may only need to suffer a deferred payment structure, connected to ongoing trading performance.

There might be requirement for an earn out or a combined offer of cash, earn out, stock options.

No right or wrong answer to which works best – it is down to the individuals, motivations, roles being carved out for them.

Be realistic that if you’re even half crucial to the business, you will need to factor in a likely risk nullifying deal structure of hanging around in some capacity.

Seller Financing

More popular in the US than UK but one way to bridge a price gap, particularly with smaller and riskier businesses, is for the seller to help bridge that gap by financing a deal. Essentially, this means deferring some % into an interest bearing loan.

This is clearly not popular with sellers but if it’s the only deal in town, you may need to seriously consider the option.

Everything Still to Play For

How many deals fall at the very last hurdle? More than you would think. It’s a common curse of corporate deals that heads of terms creates a sense of excitement, but the detail of DD brings opposite deflation.

Even heads have been agreed and DD is underway, there is still everything to play for and it’s here that all your preparation will truly show its value. Cleaner and better prepared your business, the more likely to get that deal over the line.

Rest easy only when the cheque is in the bank.

Article written by Andrew Weaver, CEO and Co-Founder of LawyerFair

Further reading: Using the auction route when selling a business