Three Ways to Successful Business Sale Negotiations

Some of the keys to negotiating the sale or purchase of a business are like buying a car or a house; however, do not be fooled. This can be much more complicated especially when it gets past perhaps the easier part – price. After agreement on selling price here is what you must keep in mind. Almost any initial offer for a business is going to be lower than the seller thought it should be or believes is “fair market value” and that can make a seller feel insulted. It always happens though so get used to it regardless of what side you are on.

Here comes what will likely happen next – a counter offer to the original offer. Accepting this position as a seller? You might. You may want to continue the tennis match though and launch your terms back to the prospective buyer.

Here three ways to get to a more successful negotiation:

  1. Employ An Intermediary. The services of a business broker as an intermediary in this phase can be very valuable.  If the buyer and seller negotiate face-to-face, chances are high that ill feelings will be aroused. Even some innocent comment by one of the parties is often times taken the wrong way and the whole transaction blows up. It’s an extremely sensitive phase of the process. Yes, we are brokers and this is our job. With this disclaimer in you most often need an intermediary. You don’t have to take our advice but asking for his input could be very advantageous.
  2. Cash Is King. If you are a cash buyer, you’re in a stronger position to bargain on price.  If you are asking the seller to finance a significant portion of the purchase price, you still have some room to negotiate but maybe not quite as much.
  3. Show Respect. You are going to be working together and need to be on good terms during the training and transition phase after closing the transaction. Don’t make ridiculous demands or create unnecessary anxiety or attack anyone ad hominem.

A note here. As a buyer try not to insult. It is not a distress sale so don’t expect to buy the business at a distress sale price.  If it is a distress sale, the business is worth the depreciated value of the furniture, fixtures, equipment and inventory. Be reasonable. Do your due diligence. Get outside representation. Don’t get lawyerly contentious and find what you want and what you will be passionate about building. As a seller don’t hold onto unrealistic ideas. Be strong but remember a sale is a give and take and you have to give some and stand strong in other places.

Once you have come to an agreement on price and terms, move on to the next phase with all deliberate speed.  The next phase is the due diligence investigation and that will carry a larger part of the details you need to complete a transaction.