Helpful Hints for Negotiating a Successful Transaction
Whether you are buying or selling a business, there are a few basic rules to follow when negotiating a successful deal. Certainly the over all guiding principal should be for both parties to be clear on their objectives and to seek a win-win outcome.
What is my bottom line?
Good negotiations start with you being clear on your desired outcome. Take the time to identify your transaction goals – Price? Terms? Training? If you are buying, be clear on what you feel is the most you can pay, given various terms, while meeting both your salary and investment goals. You need to know when to walk away from the deal if things aren’t adding up. You also want to be comfortable with how the transition to new ownership is likely to pan out, i.e., are key employees likely to remain, is the owner committed to training.
If you are selling, clarity of your objective is also paramount. What’s the lowest price you will accept? Will you accept a note and if so with what terms – interest, time, collateral, financial strength of buyer. How much time are you really willing to put into training? Will you agree to stay longer for a consulting fee?
Be knowledgeable about the other party:
The more you know about the party you are negotiating with the easier it will be for the negotiations to follow an organized outline of issues that need to be addressed. The buyer should have completed enough initial research to have a good understanding of the business. They must be clear on which weaknesses will need to be mitigated by the seller. The buyer should also understand what is driving the seller to sell so that they can posture their offer to best meet these underlying motives of the seller.
Likewise, the seller should know what is motivating the buyer so they can point out how the proposed transaction meets the underlying requirements of the buyer. The seller must also be comfortable with and confident of the buyer’s financial and management strength before they can in good faith take back a note. As a seller, you should also anticipate the buyer’s likely reservations about your operation and be prepared to address any perceived weaknesses with proposed solutions.
Being knowledgeable comes not just from gathering information, it also comes through good listening skills. The more each party listens to the other’s desires and concerns, the more likely they are to be successful in anticipating concerns and offering win-win solutions.
Relationships count:
Negotiations will run smoother if both parties have established a cordial relationship either through planned social events such as dinners or golf outings or simply through sincere expression of interest in the other’s opinions. Always take the time to build rapport before embarking upon a complicated negotiation. It is also important that each party not go back on promises, exaggerate or misrepresent facts when trying to defend a point of view or prevent someone from saving face when they feel forced to make a concession. This will certainly erode goodwill and undermine trust.
Flexibility is the key to win-win:
Buying and selling a business is a complicated process with many variables that must come together in a win-win combination. Remember price is only one aspect of the deal.
When both parties consider all the variables and demonstrate flexibility, they are much more likely to virtually stumble onto a winning combination.
For more information about buying and selling businessnes, and to view businesses for sale, visit our official website at www.vrdelval.com. To contact Brad directly email him at belliott@buyandsellbusinessblog.com.
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Brad Elliott is Principal/Broker at VR Business Brokers in Ewing, NJ. Brad himself has owned, operated, and sold a multitude of small to mid-sized businesses over the last 15 years. Brad received his MBA from MIT’s Sloan School of Management and comes from a family of entrepreneurs.
