Negotiation Ninja: How to Buy & Sell A Business
Mastering negotiation doesn’t happen overnight. It’s a skill that requires practice – and a lot of homework. Closing a business investment or sale is quite different to a regular negotiation, with potentially much more at stake. As a buyer, you’re looking to purchase the company for favorable terms and a low price. On the other hand, sellers are looking to get the maximum possible return for their hard work. Inevitably, given these opposing goals, there can be tension involved. But there is also a common goal – both want to close the deal at the end of the day. So to that end, here are some effective negotiation tips for buyers and sellers to help you both reach a satisfying conclusion.
Basic principles of negotiation
Chester L. Karrass said that “in business as in life, you don’t get what you deserve, you get what you negotiate”. Mastering the art of negotiation is useful in all walks of life – and crucial in the world of business. Charm and luck will help you to a point, but if you can learn perseverance and discipline, you will go far. Let’s touch on the basic principles of successful negotiation:
• Know the most you are willing to pay (or the least you are willing to accept) going in
• Keep your target (what you consider a reasonable outcome) close to your chest
• Don’t focus only on what you’re going to say – be ready to listen
• Build a relationship with your counterpart based on trust
• Get your hands on as much information as you can
How to negotiate a business sale
Naturally, the selling price is often the most difficult aspect of negotiating a business sale. As the existing business owner, you’re not just selling your most valuable financial asset – you’re also parting with something of emotional significance.
A business’s selling price is often more complicated than a simple ‘one price covers all’. Often it is split into sections: the price of the assets, the price of any buildings and land, stocks and shares, and any compensation you may require. All of these differing factors will need to be considered during the negotiation process.
As you enter the negotiation, it’s important for you to have a ‘walk-away number’ in mind. Concessions often have to be made, but you should know the point at which you’re willing to let it go, rather than leave with a bad deal. You may regret it in the long-run.
As the current owner of the business, familiarize yourself with your potential buyer’s true agenda. What is really driving them to make you an offer? What do they hope to gain from owning your business themselves? An appreciation of their perspective is important – so do plenty of research beforehand. You should also concern yourself with any relevant industry activity that could impact your buyer’s decision-making.
Tips on negotiating when buying a business
Buying an existing business can be preferable to starting your own from scratch. Here are 7 things to keep in the back of your mind as you try to secure a deal:
• Open the bidding at the lowest price you can – but be ready to back this up with credible reasons, backed by your own research
• Plan your argument in advance – rehearsing your strongest points before the negotiation will help to give you confidence
• Be wary of bargains – remember, the seller knows more about the business than you. If they accept your first bid, it may have been too high. Further, you should never agree to the first price you are quoted
• Don’t be put off by status or attitude – negotiation is, to some extent, a power game. Don’t allow yourself to feel undermined or threatened; remain indifferent rather than defensive
• Be tough, but fair – you want to secure a good deal, but you should also consider whether you’ll need to retain the goodwill of the previous business owner once the transaction is complete
• Ask questions – ‘what if’ questions in particular can help to strengthen your argument and position, e.g. ‘what if your biggest client went out of business?’
• Avoid revealing what you can afford – you should keep this information quiet until near the end, when it will have more bargaining power
Buying and selling businesses online
The house-flipping industry is often romanticized – and it can certainly be a lucrative and fulfilling lifestyle for those who know what they’re doing. For the more digitally inclined entrepreneur, the concept of flipping has now extended to websites. Buying and selling businesses doesn’t always involve brick and mortar – there is now just as much potential money to be made in buying and selling online businesses. If you can take an ecommerce store and improve its performance, you can then sell it on for more, having earned a passive income in the meantime.
One of the real advantages of buying a website (rather than setting up your own) is that the site is already indexed and has a pre-existing audience. Aim to buy one that’s over one year old to avoid the Google sandbox. Exchange is an online website flipping marketplace where entrepreneurs can browse and list businesses for sale.
Victoria Greene is a Brand Marketing Consultant & Freelance Writer. She works with new ecommerce businesses and entrepreneurs to create valuable content and improve the performance of their websites.