If you are trying to sell your business, then you probably already know that one major step on your path will be the negotiation of a purchase price and the negotiation of the purchase contract.
If you’ve ever been involved with the purchase of a house or a car, then you already know a little bit about how the negotiation phase is going to go. A buyer offers a price, the seller counters – and after a bit of back and forth the deal is done.
The major difference with business sales? There will be many, many more moving parts. The best way to deal with these many moving parts is to prepare yourself for the negotiation process by following these tips.
Hire a business broker and use them as an intermediary.
With so much money changing hands and with the complexities of a purchase contract, having an intermediary like a business broker can keep the deal on track. Buyers and sellers will often offend one another unintentionally and kill the deal, so the best way to avoid this pitfall is to hire a broker and listen to their advice when it comes to matters of negotiation. The most important piece of advice you will get about the negotiations? Keep the broker in the middle. Any communication during the negotiation process should go through the broker. This is the only way to keep the opposite sides of the table from offending one another.
Don’t freak out over the initial offer.
An initial offer is usually lower than a seller would like it to be, and in some cases the offer is perceived to be so low the seller refuses to even begin to negotiate. If you are a seller, you need to put yourself in a buyer’s shoes. If you were trying to buy a business, you would want to get it for the least amount possible, allowing for more working capital the day you take the keys. Don’t take low offers personally, instead consider them a jumping off point for negotiations. A decent buyer will justify a low offer with points that you can address individually. Just remember that the initial offer, just like your listing price, isn’t the end of negotiations – it’s the beginning.
Keep your head in the game and your heart off the table.
Although your business might feel like your first-born child, please remember that it isn’t. It is an investment you are now cashing in. Strong emotional attachment brings issues with letting go, issues with being easily offended and issues with overvaluing the business. Keep a level business-head and try to keep your personal feelings in check.
Be 100% prepared for compromise.
One last and very important point to make regarding negotiations – the final purchase price and purchase contract will be a compromise for both sides. Go into this process understanding the reality that you are not going to get everything that you want, no matter what side of the table you are on. Many deals have died because one side (or both) refused to budge over something tiny, like the value of a piece of equipment or the closing date. Stay calm, patient and willing to compromise and you will have a far better chance of reaching the closing table.
Are you a business owner who is thinking about selling and want to know more about the process? Would you like to know what businesses like yours have recently sold for? Do you want to know what a purchase contract might look like for your business? Please feel free to leave any comments or questions here and we would be happy to help.
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