If you want to secure your ideal business on the best terms possible, you’ll need to be prepared to do a bit of haggling. Unless your target acquisition is a hotly contested proposition, the seller will already expect to be flexible on price for the right buyer.
It’s important to consider your negotiation strategy before you enter discussions and to decide where you’re prepared to make concessions and which aspects may be deal-breakers. Don’t let your dream business slip through your fingers for the sake of a few minor concessions but, equally, don’t be persuaded to pay more, or concede more, than feels comfortable.
1. Don’t go in with your best price. Open negotiations at a lower level than you’re actually prepared to bid, so you leave yourself a bit of wiggle room. A low opening bid can be useful as it may help to reduce a seller’s expectations but you also risk being dismissed out of hand. Be wary if the seller accepts your first low bid and ask yourself why they’re so keen to sell.
2. Ask the seller to justify their selling price and do your own research to find out the price at which similar businesses have recently changed hands. Don’t be drawn into discussions over what you can afford to pay at this stage – at least until you need to use it as a negotiating tactic when you can leverage what you can afford as a limit on price.
3. Do your research. Give yourself the advantage in negotiations by doing as much research as you can about the seller and their business. Find out who their competitors are and if they have a good – or bad – reputation. Obviously, you’ll need to schedule due diligence to ensure their paperwork supports the asking price and to make sure there are no skeletons in the closet.
4. Try to maintain a neutral response during negotiations – whether the news is good or bad. Keep your language reasonable and make sure discussions are always cordial; being offensive or overly critical will more than likely draw a defensive response and can close down negotiating channels altogether. Remember – the seller’s goodwill may prove invaluable when if you agree a deal to take over the business.
5. Stay tough. You might feel as if the fairest – and most logical – approach is to negotiate so you end up at a notional mid-point between the buyer’s and seller’s starting position. But remember that you’re buying a business, not a car, and your job is to make the momentum swing your way. Don’t be persuaded to make concessions when you’re confident that your bid is the right one.
6. Practice makes perfect. It may sound silly, but if you can try role-playing with a colleague or partner taking the role of an objectionable seller, you’ll be better prepared for the real negotiations. Take the time to get comfortable and work out your responses to potentially tricky questions.
7. Don’t be fazed by the wealth, status or attitude of the seller. Whether you’re negotiating with the guy next door or Alan Sugar, your approach should be calm, orderly and confident. It’s up to you to appraise the business from your own perspective, so don’t be bullied into taking another’s viewpoint, however persuasive they might be.
Posted on November 09, 2018 | Negotiating