You’ve found a business that meets your criteria and you’ve vetted it with your accountant and attorney. Now, your focus can shift to developing your offer—and ensuring that you know how to negotiate buying a business to get the terms you want. We can teach you how to get started.
Strategy 1: Prepare
Before meeting with the seller, spend time learning everything you can about the business. Pour through the documents and resources you were given in the preliminary due diligence process. Make sure you thoroughly understand the value of the business, its strengths, and the opportunities it can access, as well as its risks and drawbacks.
Strategy 2: Home in on what matters most to the seller
Take time to research the seller, too. You should learn why the seller wants to exit the business, the concerns they have about selling it, and what they're likely looking for in its future owner. You should also determine how interested the seller is in supporting the business after its transition and how amenable they are to terms like seller financing and earnouts. The seller’s broker should be able to answer most of these questions for you.
Strategy 3: Decide in advance what you need to move forward
Have a firm understanding of the highest price you’re willing to pay for the business and the terms that you can’t imagine moving forward without. Hold firm to these items, but consider where you might bend on some of the less important terms to help the seller earn some wins, too.
Strategy 4: Run through a rehearsal
Practice your key points in advance. A dependable, straight-shooting friend or colleague can help you firm up your ideas, point out weaknesses in your logic, and appear more polished and professional
Strategy 5: Back up your points with data
Decide on the terms and price you want in advance. Then, be ready to back those requests with logic by sharing market comps and industry research. It’s much more likely that the seller will respond favorably to verifiable information than to unfounded requests.
Strategy 6: Start your discussions off on the right foot
Commit to building a positive dialogue with the seller. When you speak openly, honestly, and with civility, you can build trust with the seller and demonstrate a willingness to both understand their perspective and work cooperatively toward an agreement that benefits both parties.
Strategy 7: Sell your strengths
Tell the seller about your interest in the business and why you're a great candidate to lead it to a prosperous future. You could mention your skills, knowledge, and experiences with the industry, similar businesses, managing others, or other attributes that help the seller understand who you are and why you’re a good fit for the business.
Strategy 8: Start with the small issues
Ease into your negotiations by settling on the terms of issues sellers won't likely debate. Start by discussing post-sale transition plans, the timeframe that’ll be needed to conduct further due diligence, and your target close date.
By reaching a quick consensus on a number of small items, you can show good faith that you want to come to an agreement on larger issues. You can also establish a strong foundation of trust that’ll help you through the more difficult points ahead.
Strategy 9: Ask for more than you expect to get
Lots of people buying a business offer a lower price than they’re willing to pay, or they ask for better terms than they’re willing to accept in the deal. If you follow this strategy, don't offer outlandish terms. This mistake could ruin your credibility as a knowledgeable buyer or businessperson—a move that’s sure to limit your success in the later parts of your negotiation. Instead, pitch fair, reasonable terms that are within the ballpark.
Strategy 10: Offer a win
If it becomes clear that the price or terms you’re proposing are vastly different than what the seller had hoped for, try offering some concessions to make the deal more attractive. There are three important strategies that may help:
- Make sure the seller knows you’re giving up something that you value.
- Ensure the seller understands that you’re offering a concession so that they’ll return the favor on another aspect of the deal.
- Avoid offering multiple concessions at once. Instead, hold some back and offer them throughout the negotiation to leverage more wins.
|One of the concessions you could offer is compensation to the seller for agreeing not to compete with the business for a fixed period of time. This concession may surprise the seller and shift their mindset so that they respond more favorably to future discussion points.|
Strategy 11: Know what goes in the price
Instead of pitching an offer price upfront, talk about the valuation of the buildings, equipment, and assets; the value of the brand; the value of the business’s customer lists; and the price of any shares of stock that the seller or others may own. Sellers like this approach because it shows that you’ve formed assessments and arrived at a price that’s based on reason.
Strategy 12: Plan the contingencies
Share the conditions the seller needs to meet to finalize the sale. These might include a favorable audit of the business’s financials, approval for financing, verification of the inventory on hand, and the transfer of any applicable leases, titles, or intellectual property rights that are necessary for the business to operate. These conditions should be non-negotiables from your perspective. Plan to hold firm to them.
Strategy 13: Consider covenants
Talk about the promises you need from the seller if you're to go forward with buying the business. These could include:
- A promise not to compete with the business
- An agreement not to solicit customers or employees from the business
- Verification that permits and licenses are current
- An assurance that all leases and liabilities are current
- A promise that there are no liens or judgments against the business
Strategy 14: Be prepared to walk away from buying the business
Listen to the seller’s counterpoints, and try to address their concerns. If you find that you can’t come to an agreement on the price or some of the terms, pause the discussions to consider whether—and how far—you’re willing to bend on those items. If you aren’t willing to bend, you should let the seller know that you need to pass on the opportunity. Be courteous, and thank them for their time. Let them know that they can call you if they change their mind.
If you’ve reached a mutual agreement, you can move forward to other important parts of buying a business, including taking on due diligence and securing the financing you need.
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