Step 6: Negotiate A Mutually Beneficial Agreement With The Steering Committee

You have agreed on the sale price for your business. Now you have to agree on the payment arrangements. There are two possibilities:

  • you receive the full buyout price upon transfer; or
  • you obtain a partial payment upon transfer and receive additional payments spread out over a pre-determined period.

The second of the two options is used more frequently in the case of business transfers. It may include an "earn out" variant, that is, the balance of payments can be indexed based on the business's earnings over, for example, the three years following the transfer.

The buyout method with a "balance of sale" is often preferred because it suits all three parties to the transaction:

  • you, the owner, because it may be accompanied by supervisory authority over the business's management (advisory function or mentor's role), which enables you to ensure that your business continues to be managed properly;
  • the co-operative buying the business, because it is easier for the necessary financial resources to be mobilized; and
  • the financial institutions financing the buyout, because the former owner's ongoing presence is an additional guarantee that the business will be managed properly and, consequently, that their loans will be protected.

How can the co-operative finance your company's buyout?

Several institutions may play a role in the financing of a co-operative project including credit unions which are financial co-operatives in their own right.

Other local or regional funds may also be accessible to co-operatives through your provincial co-operative association, sectoral federation or Community Futures Development Corporations (CFDCs), etc.

Once an agreement has been reached on the price and conditions, a letter of intent, or an offer to purchase, will be submitted to you by the co-operative's steering committee.

In all likelihood, the letter of intent, or the offer to purchase, will include a request to conduct due diligence, or a second detailed evaluation in several areas (legal, accounting, fiscal, organizational, etc.), before the sale is concluded. Potential buyers usually require this type of audit.

Once this process has ended and you have completed the final negotiations to your satisfaction, you will then be able to sign the contract of sale for your business.