Once you’ve found a business that meets your criteria and you’ve vetted it with your accountant and attorney, you'll start developing your offer. You probably know you'll get some pushback for terms you want to ask for, and you may be wonder, how can I negotiate to get enough of what I need when buying this business?
This guide will show you how.
Strategy 1: Prepare
Before meeting with the seller, devote a significant amount of time to 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 have a sound understanding of 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 is interested in exiting the business, the concerns this person has 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 open 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
Before you make your pitch, name 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 (and get the “yes” you need).
Strategy 4: Run through a rehearsal
Ready to negotiate buying a business? Practice your key points in advance. Work through them with a dependable, straight-shooting friend or colleague. Ask for help in firming up your ideas, finding weaknesses in your rationale, and making your presentation more polished and professional.
Strategy 5: Back up your points with data
You know what you want to ask for. Make sure your requests are reasonable, and back them up with data. Here, market comps and industry research can be a big help in verifying your claims and convincing the seller. 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. You can also show that you're willing to understand their perspective and work cooperatively toward an agreement that benefits you both.
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 new successes. You could mention your skills, knowledge, and experiences with the industry, similar businesses, or managing others that would 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 that aren't likely to be debated. 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 in your desire to agree on larger issues, and you can 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
It's a common practice to offer a lower price than you’re willing to pay or ask for better terms than you’re willing to accept in the deal. However, avoid offering 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, you should pitch fair, reasonable terms that may be acceptable to the seller but will likely need to be adapted to come to an agreement.
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 that’ll 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
Rather than pitching an offer price upfront, you should discuss 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. This approach is usually received well by sellers because it demonstrates 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 must meet to finalize the sale. Those conditions could 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
Discuss the promises you require from the seller. These may 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
- Assurance that all leases and liabilities are current and taxes have been paid
- A promise that there are no liens or judgments against the business
Strategy 14: Be prepared to walk away
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. Then, 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 come to an agreement on the terms of the sale, you can move forward to other parts of the process, including completing due diligence and securing the financing you need to acquire the business. These articles can help with these steps:
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