When buying or selling a business, negotiation should lead to a win-win situation for the purchaser and the seller. A win-win situation allows both parties to leave victorious, getting something they want. This is the optimum situation, as both the purchaser and seller want the business to be successful after closing.
Negotiation is the act of persuading or influencing someone else to adopt a certain course of action and should not be a confrontation. When you find a business you like, you go over the basic information provided and then meet with the owners to see the business and get more detailed financials. After you review everything and crunch the numbers, sometimes with the help of an accountant and attorney, you make an offer to purchase the business. It is important to prepare a budget based on the current and past financials to make sure the income the owner is making will meet your needs and cover your expected expenses. You make an offer, however, based on the history of the business, not on the budget you expect to make. It is good to make the offer you think you can live with; but most of the time the seller counters your offer, with a request for more money or to change the terms you requested. This has started the negotiation process.
Negotiation starts with knowing what you want to gain. Research, communication and timing can be factors in successful negotiation. Communicating skills, including body language, are vital to negotiation. Eye contact shows the listener you are intent. Looking away can show you are weak or will give more. Looking the seller in the eye establishes authority. It also shows you are listening with your full attention. You must meet objections rationally, point by point to secure results, and a positive attitude is vital for effective negotiation. Most negotiating when buying a business is done in writing as a counter offer; but if it is difficult to agree, it may be best to sit down face to face and agree before writing the final counter offer. It is important to remember that an offer or counter offer is void when a new counter offer is written; so if a seller gives you a signed counter offer and you reject it by writing another counter offer, the seller can just say no by not signing and the deal if off. Of course, that works the same way for a purchaser. It is best to get as close as possible to the amount you consider to be a fair price when you make the original offer.
Decide what you want and write down the best possible outcome for the negotiation. Clarify your goal so that it stays in your mind throughout the preparation and final negotiation. Write a fall back position or the minimum area in a range of concessions in which you are willing to compromise in the negotiation process and prepare mentally for the worst case scenario or the worst thing that can happen. Consider what you have to lose and what you have to gain and be businesslike in all negotiations whether you gain the desired outcome or not.
When negotiating, don’t be defensive or issue ultimatums. Ultimatums set up a win-lose situation. If you lose an ultimatum, you must be prepared to accept either outcome, because you have backed the seller into a corner. Remember, verbal negotiations are not binding until they are in writing and have been signed by the purchaser and the seller. Being defensive and issuing ultimatums can cause the seller to decide not to sell the business to you, as selling the business is very personal. Sellers have been known to back out of the sale because they decided they do not like the buyer. That is a mistake on the seller’s part, but a smooth transition makes everyone happy.
Ultimately, the selling price of a business is the amount the purchaser is willing to pay and the seller is willing to accept. Your business broker will help you through the process to make your purchase a win-win situation!
