Negotiating Your Way to a Great Deal

2misi.com

http://www.2misi.com/article/2012/06/negotiating-your-way-to-a-great-deal

When it comes to buying a business for sale, the most exciting and anxious moments can be experienced when the time arrives for you to enter into negotiations and made an offer. Just like every other aspect to the buying process, your preparation will determine your level of success.

Negotiating involves many independent personality issues. When dealing with a seller you must bear in mind that this is a very emotional time for them. They are looking to sell a business that has benefited from their hard work and sweat. It can be quite a personal adjustment for many and they do become irrational. They often feel as though they are losing a part of themselves. Be sensitive to their emotions but never at the expense of fabricating a good deal for you.

Find Their "Pain," Soothe It and You Win!

Everybody has their "hot buttons" in a deal. These are the points that, in the mind of the buyer or seller, will make or break the deal. Once you identify them and can find a way to ease their concerns, you'll win. It works all the time.

The former method is usually more effective only because you can read into a variety of issues once you see the structure of a counter offer. However, asking them directly is a very accurate way to measure this as well.

Get as close as you can to their figure but, in exchange, get reduced interest rates on the balance of sale, extend the first payment to 60, 90 or 180 days after closing, negotiate the first year without interest, include the ability to payoff the note at anytime without penalty or to make periodic lump sum payments towards the principal. There are tons that you can do once you know their pain.

Preparation is The Key To Successful Negotiating

The average purchase agreement has over fifty individual clauses to be negotiated. There is far more involved than simply agreeing upon the price, down payment and terms.

Structuring The Offer

The offer will, in most cases, begin the ball rolling on a potential acquisition. At times, this is the most effective way to gain insight into the guts of the business. You may also be dismayed to learn that you may in fact have to make an offer without all of the data that you would like to have. As an example, you may only gain access to the true financials after an accepted offer has been put forth.

This is fine; no need to panic. You may be asking: "how can I formulate an offer without all of the information?." A good question in theory, but this is not always reality. Consider the fact that sellers may be exposed to an onslaught of buyers and, not knowing which ones are serious, they may choose to hold back certain information.

On the other hand, don't be ridiculous. Table something that forms the basis of a future meaningful conversation. Your offer is, to a certain extent, a tool to prod the seller into playing his or her hand and to get them to demonstrate their pain; the areas that are fundamental to the deal - from their perspective.

There's nothing wrong if they are insulted. They may or may not be, and you can always refine your offer as the case may be. Additionally, a buyer's value of the business will certainly differ from a seller. That's where negotiation comes into play. There are no hard rules for what the terms of your offer should be. Each situation is different. While it's not advisable to make unlimited offers expecting one to catch on, you must make offers. Don't over engineer each potential acquisition. 

Once a business is of interest, you've done your homework and you determine that you would, under the right conditions, like to buy the business, get your offer in.

Generally, once an offer is accepted, you will have a certain number of days to perform the financial due diligence. Allow yourself enough time to conduct this.

Lawyers, Accountants and Business Supervisors - Everyone has an Opinion

Lawyers cannot negotiate your deal for you. They can certainly help to ensure your protection from potential liabilities but when it comes to negotiating the actual business deal, they are definitely not the ones to act on your behalf. You'll want to hear their point, but their input should be reserved for the areas in which they are experts: the legal aspects of the deal.

As for accountants, they too have their role: the input from a financial point of view and tax consequences. Leverage their expertise as well, but do not let them influence the actual business deal.

Business supervisors will stay by your side right from the beginning to the end of transaction and gives you valuable feedback along the way to avoid pitfall.

The Last Word

Great negotiators are not born; they evolve. Your effectiveness will increase over time. Be creative. Be reasonable. Keep the end result of putting a good deal together in your mind. Don't lose patience. Don't be confrontational. If there is tough news to deliver, let your business supervisor do it.