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Here are some tips for keeping your cool in negotiations and getting the right price, and buyer, for your business.
Negotiating the sale of your business is something that takes a little finesse and sensitivity, as well as grit. In order to reach a mutually agreeable conclusion for you and your buyer, make sure you employ these five key skills:
1) Inter-personal
There’s nothing like the human touch. If you receive a serious enquiry about your business, it’s always a good idea to touch base informally with your potential buyer before negotiations start.
Whilst hiring legal professionals at the ‘nit-picking’ due-diligence stage of negotiations is advisable, your first relations with your buyer should be about core terms.
Mark Jason, director at LINK Business Brokers agrees, ‘Common mistakes that sellers make are not building rapport and a relationship prior to entering negotiations, as well as discussing price too early and failing to consider all terms that will need to be agreed.’
And while a ‘ballpark’ asking price might be understood by both parties from the outset, the final discussion, after the sellers’ investigations will determine the definitive figure.
At this early stage other key economic and procedural terms that form the basis for further negotiations are more important, including any possible seller take-back, protocol if either party wants to pull out before the transition period is over and the working capital that will exist in the business at the point of sale.
Listen to your buyer; use your ears, not your ego. Ask lots of questions and find out what your buyer really wants from the deal; this way, you will have more of an idea of what you can and can’t control.
Ultimately, if you are in tune with your buyer’s needs, you can proceed more constructively.
2) Honesty (to a point!)
Obviously, your buyer will want to feel that you have been honest about the condition and potential of your business, however, how you present things will be integral to success.
Rob Goddard, CEO at Evolution Complete Business Sales advises caution: ‘The initial meeting with potential buyers is key; mistakes at this stage are hard to rectify and generally result in failure. There is a real skill at disclosing all salient facts, especially the tricky ones, without losing the attraction of the business for sale.’
Exercising a little control is a good idea. Remember – the more you say, the more you give away.
‘I always advise clients that wisdom is the best policy. Everything you say must be truthful, but you don’t need to say everything.’
Being too open can lead leave you with less leverage. Mr. Goddard has first-hand experience of this. ‘I was once dealing with some sellers who shared their post-sale plans with the buyers. They were going to move to another continent within six months of selling the business and start a new life with their family. The result? The buyer held up negotiations until the very last minute and offered a reduced price. In this particular case the buyer had no choice but to accept!’
There is a fine line between reassuring your buyer that you are offering a bona fide opportunity, and giving them the upper hand.
3) Flexibility
The sale of a business always involves compromise so, as a seller, you must be prepared to bend on certain issues.
‘Being inflexible and losing sight of the overall agreement when deadlock is reached over minor issues is a sure way to lose a sale.’ says Jason.
He advises using an intermediary when the finer details of a sale are being negotiated. ‘It’s the job of a good broker to manage the process diplomatically and guide both parties through the process, while educating them and keeping their expectations or perceptions within the boundaries of the other party and the structure for which the broker believes the best outcome will be attained.’
In terms of selling price, you should have a plan A, B and C in your mind from the outset. A is the ideal; the top price you could hope for. B is a compromise, but workable. C is when you walk away.
If a buyer brings you down to B, you are still in a good negotiating position. You have allowed them to feel like they are in control and so will probably have a little leverage on other assets and aspects of the deal.
Remember that both buyer and seller are trying to find the right ‘fit’ and this will take a lot of jostling around. Panicking or getting impatient will not help the process.
4) Self-belief
This is about knowing your worth. No one is going to want to buy your business if you aren’t passionate about it. Take this energy into the negotiations.
Keep in mind all your enterprise’s best assets and ask yourself what in particular would be of interest your prospective buyer.
Be wary of offering too much of a discount just to make the sale and, no matter how tempting it may be, don’t make promises you can’t keep.
If the buyer has agreed to the full purchase price, don’t get carried away and promise things in terms of stock and timings that won’t be feasible.
And don’t get yourself into a position, early on, where you can’t approach alternative buyers. ‘Granting a buyer exclusivity at the first meeting is another common mistake and one that your advisors will not let you make. I am aware of one meeting where a highly experienced buyer, as he was about to leave a very positive first meeting, asked the seller for a handshake on the deal. The seller didn’t hear properly and unwittingly led the buyer into thinking he had agreed exclusivity, on the shaking of hands.’ says Goddard.
5) Restraint
As a business seller it’s hard not to succumb to ‘sales patter’ when you are trying to convince a buyer that your business is more worthwhile than any other on the market.
However, the art of negotiation is not an exercise in selling: it has to be a measured discussion.
Don’t put your buyer off by going for a classic sales pitch. Rather than rattling off all your business’ assets, try a more equable approach: ‘This is what we do and what we can offer. How might that work for you?’
And, if you are confident that you are offering a good opportunity, hold firm and don’t give in to your nerves,
‘A mistake that sellers often make is underestimating how much the other party wants a deal to occur’ says Jason.
There is a lot more to the art of selling a business than hanging a price tag on it and hoping for the best. Work on these five negotiating techniques and you will be well on the way to selling your business with style!
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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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