Negotiating a business purchase isn’t a zero-sum game where the winner takes all.
Compromise and mutual trust are the twin pillars that get deals over the line. Among other things, we explore the value of appointing an independent intermediary and outline six key negotiating tips for securing the best deal possible.
Once you’ve decided on a business you want to buy and the seller has deemed you a credible buyer, it’s time to come to the table ready to negotiate terms.
With this in mind, there are plenty of things to consider throughout the process.
Should I appoint a business broker?
Not every business buyer appoints a business broker – an intermediary who can help you navigate every stage of the buying process – but it’s arguably worth the outlay. Helping you prepare for, and conduct, negotiations are among their most useful services.
The vendor is likely to have a professional adviser present too – possibly even conducting negotiations on their behalf.
Independent and experienced in business sales, they act as an honest broker to keep high-stake negotiations amicable, professional and moving along to a satisfying conclusion for both parties.
What does the seller want?
Take a moment to step into the seller’s shoes and consider what their ideal outcome would be.
They may make this easy for you and be upfront early on about what they want. However, others may hold their cards
Knowing what they want from the negotiation will help you meet them halfway and think of various ways to structure a deal that appeals to both parties.
Above all, the seller wants to be able to trust you. Show the seller that you are trustworthy and sincere in your interest in a business they have worked so hard to build.
Never make the seller feel like you are trying to cheat them out of a fair deal; be upfront and honest about what you want and the chances of them returning the
What do you want?
Decide on your ideal outcome from the outset and come to the negotiation table over-prepared to discuss every possible option.
Be willing to compromise, but also to stand firm if the seller wants to cross certain ‘red lines’. For instance, you may decide the business is heavily reliant on the outgoing owner and insist that he or she continues working for the business for a limited, transitional period post-sale.
Striking the right balance is tricky - you don’t want to back down too easily, but you shouldn’t appear stubbornly resistant to compromise.
A confrontational approach rarely helps to build trust and as many sellers don’t want to surrender their business, they’ll probably avoid an emotional attachment to someone they dislike.
Being too eager to please
Be assertive without being aggressive. And friendly without being submissive.
Make your position clear and ask the seller to do likewise. If both parties understand the other’s goals, you can quickly reach a compromise that is fair to both of you.
What if the seller is being unreasonable?
If you’re not prepared to walk away from the deal then the seller has all the leverage.
If you give the impression that they needn’t compromise to make the sale happen, then you might end up with a deal that unfairly
So, no matter how long and tortuous the negotiations, and however much you want the business, be prepared to walk away – and make sure the seller knows this.
Remember, there’s no need to rush things.
It is worth a few more days or weeks of negotiations versus months of regret and a less healthy bank account if you hastily accept a poor deal.
A successful negotiation is all about going back and forth until both parties are happy.
Top negotiation tips in brief
- Come to the negotiating table prepared
- Take the time to walk in the seller’s shoes – find out what they want from the deal
- Decide what you want from the deal – and be clear and upfront about your goals
- Mutual trust is everything
- Be assertive but not confrontational, friendly and flexible but not too accommodating
- Be prepared to walk away if the seller won’t compromise
Once provisional terms are agreed, it’s time to check that the basis for the agreement is sound – so here’s our guide to vetting the business through due diligence.