Now that you have decided to sell your business yourself one of the key things you need to understand to get the best price is the art of negotiating.
A well negotiated business could net you many thousands of dollars.
Steps To Negotiating The Sale Of Your Business
The business owner should prepare the business for sale, screen the buyers and prepare an information brief. The business owner should seek advice from professionals and know what the expectations are.
The business owner should keep in mind that they are never being forced to sell the business. While they may want a particular outcome, or may have a good reason to sell, no one is forcing the sale.
Good negotiators always have the attitude that they will be in a good position even if they do not close on a deal. This perpetuates the idea that you are selling a lucrative object.
Buyers will react to the sellers’ demeanour in any negotiation.
As a seller, always act reluctantly.
When offered a price allow the buyer to know that, as the business owner, you will be considering your options. The business has a personal value to the business owner. Always allow the buyer to know that there are things to consider, however all reasonable offers are welcomed in all fairness.
To minimise wasted time the business owner may ask (if not already done so in the screening process) can the potential buyer afford the asking price? If not the business owner may be wasting time even beginning negotiations.
This is not to say that the business owner will receive the asking price, only that the buyer has capacity to pay that price if they feel that the business is worth the price on the table.
Know the buyer
The buyer will be trying to gauge the lowest possible price the business owner may consider accepting. This is why it is important for the business owner to price the business as close to the market price as possible. In this way the business owner can always let the buyer know that the business has been priced to the market and the buyer should take this into account in their analysis.
A business owner may be more willing to negotiate on price if the terms provide a quick transaction, which is not based on finance or preconditions. It is important for the owner to consider what they are willing to negotiate on and under what conditions.
An owner may wish to offer terms to pay off the business over time to maximise the total value they receive for the business (this is called vendor terms). All of these things should be thought about before negotiations start to take place. The best possible outcome can occur for both the buyer and the seller. This negotiation is attempting to find a win-win situation between both parties.
The Owner Should Never Disclose That They
Can Not Negotiate or it is Difficult to Negotiate.
As soon as the buyer knows what the owner can’t negotiate on, they may test the owners resolve to see if it is certain. This may even make the buyer firm their position of not negotiating. If the owner is firm in not negotiating, why should the buyer continue any negotiations?
Do Not Disclose Time Pressures
The moment the seller lets the buyer know they are under pressure to make a decision, the seller will become firmer in negotiations. Buyers generally have more liberty (in time), for negotiations then sellers and they will use that to their advantage (if the seller discloses that information). It is best for the seller to put in expectations for deadlines (soft timelines) without letting the buyer know if there are any pressures related to time.
Never Disclose Poor Outcomes from Previous Buyers
The owner should not disclose poor outcomes from previous negotiations. This tells the buyer that buyers are a rare commodity and that the owner will likely negotiate further than expected. The owners’ ability to negotiate form this point is damaged.
Negotiate With a Purpose and Outcome in Mind
Amateur sellers will always allow for small concessions and escalate to larger ones. This always makes the buyer feel that there is more to negotiate on. The more concessions the owner allows the more the buyer will feel that they can negotiate. This might go on for a long time. Even if an agreement is reached they will never feel that they received value from their negotiation and the owner will feel as though they gave away their business.
Professional Negotiators Reverse This Process
They give their biggest concession first and let the buyer know how absolutely difficult it was to gain that concession. As negotiations continue, the concessions they allow for will get smaller and smaller or may just stop. They will always resist the buyer in negotiations and make it uncomfortable to ask for more. When the process is over the buyer feels they have received value for money and there was little left to negotiate on, and the owner feels they have achieved a good outcome.
Determine What is Negotiable
If the owner is clear in their own mind what is negotiable then they will have the power to lead negotiation down that track. There will be times when buyers demand more than the owner is willing to concede. The owner should have a list of trade offs this will prepare them with strategies in the negotiation process.
Buyers Will Not Value That Which They Can Get Easily
In fact if the owner is too quick in the negotiation process this will generally lead to a poor outcome. Conversely if the owner drags out the process then the buyer is just as likely to lose interest.
If the buyer has to work for a price cut, giving up something in return, they will feel they have done their job well and additionally feel like a winner. When they know they are going to have to give something up to get a better deal they will tend to make less demands for lower pricing in future correspondence.
Gone are the days when businesses are sold on limited information. Today, one of the biggest problems buyers and sellers have during the business sales process is overconfidence. The self-righteous belief that they are correct and that buyers and sellers will believe what they are told.
Now all stakeholders have become more sophisticated and will review all information, make market analysis and take professional advice.
It is important to find a professional adviser, who you can trust and whose approach matches your ambitions.
One challenge when managing a business sale/purchase process is to know whose advice to take. There are a large number of advisers that deal with business transactions and unfortunately not all of them are professional and responsible with the advice they provide.
In addition, business sales are an area where everybody has an opinion. Trying to follow the suggestions of friends, family or colleagues can be a problem, (while they will have your best interests at heart) they are not professionals, and unfortunately can be drawn as easily into myths and fashions as anyone else.
Business advice is still under-regulated. There are no minimum standards of service, or agreed expectations for professional conduct, or even an agreed minimum standard of qualification for entry into the business sales sector.
Given these concerns, a business owner or buyer is best advised to seek an adviser they can trust, understand and works for a common objective.
Ideally advisors should have recognised qualifications, and work in independent institutions not tied to a particular provider.