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Negotiating The Deal
Negotiating to sell a business is not different than other kinds of negotiations. There are books, courses, and programs available on negotiating techniques that can help you if you feel you need help.
This section will cover some of the important elements of the process and some of the goals and techniques that can be helpful to you in selling your business.
Think Like The Buyer
Before entering into a buy/sell negotiation, put yourself in the other guy's position. While you might think that even if a buyer paid your full asking price he would be getting a great deal, consider how the buyer may be thinking. The buyer may be very fearful of the transaction, especially if that buyer is an individual who has not owned a business before. Remember, a buyer is very suspicious of everything that you are representing to be true about the future of the company. The more you can appreciate where the buyer is coming from, the better you will handle the negotiating process.
Initial Goal-- Get Offer With Cash Binder
As discussed in other parts of this manual, you should be trying to get an offer with a deposit check early in the negotiating process. If you don't, you may well be wasting your time, or worse, making concessions well before you need to be making concessions. Once you lower your asking price, the lower price becomes the point from which to compromise. Let the buyer make a firm offer, and then negotiate the price and terms. Even a ridiculously low offer is better than no offer.
Every Buyer Has Other Deals Pending
It is a common strategy for buyers to tell sellers that they have other deals on the floor. They, of course, do this to pressure you, to extract concessions, and to get you to move faster. By the same token, sellers like to tell prospective buyers about the many interested parties that they have looking at their business.
Sometimes it's true; sometimes it's not true, and most times it's somewhere in between. That is, a buyer may be quick to tell you that he's looking at six businesses, but he is not so quick to tell you that three are out of his price range, and two don't interest him. A seller may be quick to point out how he received three offers but not so quick to point out that none of them were even in the ballpark of acceptability.
My advice in general is to brush off talk of other businesses that the prospect is interested in. You don't know how true it may be, and even if you did there is very little that you can do to control what happens with other deals. However, delay will only enhance the possibility that another deal will become a threat to you. Again, get an offer with a cash deposit as soon in the process as possible.
Keep Emotions Out of Negotiations
Negotiating to sell one's business is hardly a cold unemotional process. Nevertheless, it is best to keep emotions out of the process as much as possible. It is best to treat it like the business deal that it is. You and the other party will be trying to read each other's feelings. If you know how the other person is thinking and feeling you can use this information to your advantage. The same is true if the other person knows your thoughts, fears, and other feelings on the deal.
It is advisable to use an intermediary in the negotiating process to assure that your emotions don't get in the way of striking the best deal possible. An intermediary such as a broker or a lawyer will be less emotionally invested in the process and more able to negotiate effectively. If you are selling without a broker, you might want to hire a broker familiar with buy/sell negotiating on an hourly or daily basis to help with the negotiations.
Look For Win-Win Negotiation
The old school of negotiating was that every negotiation had a winner and loser, defined by who got the best deal. The new school is that both sides can come up winners; there does not need to be a loser. Both a buyer and seller can get what they want without defeating the other party. You may be prepared to accept $200,000 for your business. That may be a great price if, for example, you started it with $20,000, you are ready to retire, and you calculate that as long as you can get over $150,000 for the business, your retirement is financially secure.
The $200,000 may at once be a great deal for a buyer who figures that to start a business like yours would cost $200,000, but yours comes with a strong customer base and all the tangible items that alone would cost $200,000 (new) if he were to start from scratch.
Striving for a win-win negotiation lessens the chance of destructive friction and of a full breakdown of negotiations. Of course you won't agree on every point. But you can think in terms of looking for ways to make all involved feel that they are getting most of what they want.
Offer Benefits That Won't Be Costly To You
Think about possible bargaining chips that you can offer a buyer but that won't cost you too much. For example, offer your own availability at no cost or at very low cost as a consultant for a period of time. Offer personal introductions to bankers, suppliers, and others that may help the new owner. Perhaps you can help the new owner to learn your computer system or send business to him after the deal is closed.
If you were to pretend that you were the buyer, what kinds of things would be weighing heavily on your mind? What fears and uncertainties would you be facing? Then consider what you might be able to do to help the buyer and to allay some of the fears. There may well be a few things that you can do to help that won't have a major impact on you or your pocketbook.
Don't Get Bogged Down On Small Points
I have, on more than one occasion, been involved in negotiations that would look downright silly to an outsider. There have been situations where buyer and seller have come to terms on six figure sell prices but argue about who gets the next twelve issues of a magazine whose subscription fee was paid for two months previously. Recently at a closing for a business selling for $110,000 buyer and seller spent 15 minutes debating about $200 worth of stationery. Perhaps arguing the small points relieves the tensions of the negotiation. That's fine. However, be careful not to let a very small point wreck the whole deal, or distract attention from substantive issues.
During negotiating sessions, I have often suggested dropping a point and coming back to it later if I feel it is relatively insignificant and it is bogging down discussions. When I do this, half the time the buyer and seller forget all about the point that was causing such bitter debate until I bring it up or decide to let it be forgotten forever.
Blame Lawyers, Brokers, Brothers, Advisors, Accountants
A common but effective ploy used in negotiating the sale of a business is to blame another person as the bad guy. It's used like this. "I'd agree to finance 90% of this deal, but my lawyer just won't let me do it." Or, Gee you know I trust you but the business broker absolutely insists that your offer be accompanied by a good faith deposit of at least $5,000."
You can always be the good guy while one of your advisors or associates is making all the tough demands. This strategy is especially useful if you will continue to work with the new owner. The advisor can be the whipping boy while the principals to the deal preserve their friendly relationship