Negotiating Your Way To A Great Deal
An open minded strategy is the best approach
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When it comes to buying a business for sale, the most exciting and anxious moments can be experienced when the time arrives for you to enter into negotiations and make an offer. This part of the process completely handcuffs some individuals. There's really no need for this to happen. Just like every other aspect to the buying process, your preparation will determine your level of success.
Keep in mind that this should be an enjoyable and educational part of buying a business. There is much to be learned during this phase. You must also realize that negotiations will evolve, and so if you approach it with an open minded strategy instead of a take it or leave it philosophy, you will ultimately perform much better and produce a stronger deal.
Likewise, you should also know this is the stage when many deals come apart and never recover. Most of the time this happens becomes of the inability of one or both parties to truly understand what it takes to get the other side to see their point. Or, a failure to address the other party's in a way that protects your specific interests.
Negotiating involves many independent personality issues. When dealing with a seller you must bear in mind that this is a very emotional time for them. They are looking to sell a business that has benefited from their hard work and sweat. It can be quite a personal adjustment for many and they do become irrational. They often feel as though they are losing a part of themselves. Be sensitive to their emotions but never at the expense of fabricating a good deal for you.
Your personality traits will come to light as well. Do your best to understand yourself. If for example, you're not a patient individual, then you must train yourself to avoid giving in on a certain point simply because you're tired of discussing it. You're better off to move on to something else and come back to it with the seller.
Find Their "Pain", Soothe It and You Win!
Everybody has their "hot buttons" in a deal. These are the points that in the mind of the buyer or seller, will make or break the deal. Once you identify them and can find a way to ease their concerns, you'll win. It works all the time. As an example, if the seller wants to be certain that they walk away from the deal with a specific amount of money in their pocket after broker commissions, paying debt, etc., then the down payment amount of the deal is clearly their "hot button". There are two ways to determine this -- put in an offer and see where and how they counter or, ask them pointedly: "what's more important to you, the down payment amount or the purchase price?"
The former method is usually more effective only because you can read into a variety of issues once you see the structure of a counter offer. However, asking them directly is a very accurate way to measure this as well.
Getting back to our example, if it's the down payment then it's your turn to leverage the deal. Get as close as you can to their figure but, in exchange, get reduced interest rates on the balance of sale, extend the first payment to 60, 90 or 180 days after closing, negotiate the first year without interest, include the ability to payoff the note at anytime without penalty or to make periodic lump sum payments towards the principal. There are tons that you can do once you know their pain.
An associate of mine who is an excellent negotiator always says that you should make, and get concessions. In other words, whenever you agree to something, get something in return. It always works.
Preparation is The Key To Successful Negotiating
The average purchase agreement has over fifty individual clauses to be negotiated. There is far more involved than simply agreeing upon the price, down payment and terms. You will have to deal with the specific assets to be included, non-compete clauses. Lease assignments, inspection period, adjustments, employee issues, li
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Richard Parker author of: How To Buy A Good Business At A Great Price(TM), the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation - The Business Buyer Resource Center. Richard Parker is also the author of BizQuest's Business for Sale Blog |