Negotiating the sale of a business is a process that requires sensitivity and common sense as well as some steely determination. Whilst everyone’s approach will be different, there are some definite dos and don’ts.
In order to achieve that all-important handshake, make sure you use these 5 key negotiation skills:
There’s nothing like the human touch. Having received a serious enquiry about your business, it’s good form to touch base informally with your potential buyer before negotiations start.
Whilst you will certainly have to call in the legal professionals to iron out the deal at the due-diligence stage of the selling process, your first contact with a buyer should cover core terms and your overall goals.
‘Common mistakes that sellers make are not building rapport and a relationship prior to entering negotiations, as well as discussing price too early and failing to consider all terms that will need to be agreed.’says Mark Jason, Managing Director at LINK Business Brokers.
At this stage, you may both have a ‘ballpark’ figure in mind for the sale price, but the the final amount will only be thrashed out after all investigations have taken place, and both parties are content with what’s on the table.
Right now, other economic and procedural terms that form the basis for further negotiations are more important, including any possible seller take-back, protocol if either party wants to pull out before the transition period is over and the working capital that will exist in the business at the point of sale.
Listen closely to what your potential buyer is saying: your ears, not your ego should be put to use at this stage. By asking a lot of questions, you will discover what this buyer really wants out of the deal and, crucially, a clear idea of what you can and can’t control.
Ultimately, if you are well aware of your buyer’s desires, you can proceed more constructively.
2) Careful honesty
Transparency is obviously an important factor for any buyer; they will want to feel assured that the condition and potential of your business is what you say it is.
Remember, however, that how you present the facts can be as important as the facts themselves. Rob Goddard, CEO at Evolution Complete Business Sales advises a cautious approach:
‘The initial meeting with potential buyers is key; mistakes at this stage are hard to rectify and generally result in failure. There is a real skill at disclosing all salient facts, especially the tricky ones, without losing the attraction of the business for sale.’
Exercising a little control is also a good idea: remember – the more you say, the more you give away.
‘I always advise clients that wisdom is the best policy. Everything you say must be truthful, but you don’t need to say everything.’ - Rob Goddard, CEO at Evolution Complete Business Sales
Goddard adds that too much disclosure can lead leave you with less leverage in the long run:
‘I was once dealing with some sellers who shared their post-sale plans with the buyers. They were going to move to another continent within 6 months of selling the business and start a new life with their family. The result: the buyer held up negotiations until the very last minute and offered a reduced price. In this particular case the buyer had no choice but to accept!’
Always be aware of the fine line that exists between reassuring your buyer that you are offering a bona fide opportunity, and giving them the upper hand.
Compromise is at the heart of every business sale, so, as a seller, you must be prepared to bend on certain issues:
‘Being inflexible and losing sight of the overall agreement when deadlock is reached over minor issues is a sure way to lose a sale.’ says Jason
Using an intermediary when the finer details of a sale are being negotiated is essential:
‘It’s the job of a good broker to manage the process diplomatically and guide both parties through the process, while educating them and keeping their expectations or perceptions within the boundaries of the other party and the structure for which the broker believes the best outcome will be attained.’
When it comes to sale price, having a plan A, B and C in your mind is a good idea. A is the best price you could hope for. B is a compromise, but workable. C is when you walk away.
If your buyer negotiates you down to B, you are still in a good position: you have allowed them to feel empowered and you’ll likely now have a little leverage on other assets and aspects of the deal.
Remember that you are both trying to find the right ‘fit’ and this will involve plenty of shifting positions. Panicking or getting impatient will not help the process.
4) Self Confidence
This is about knowing your worth. If you aren’t passionate about your business, you can’t expect a buyer to be. Think about how exspand you were about this enterprise when you started out and how far it’s come. Take this energy into the negotiating room.
Have all your business’ best assets on the tip of your tongue and ask yourself what, in particular, would be of interest to this buyer.
It may be tempting, but don’t make promises you can’t keep and be very wary of offering too much of a discount just to make the sale.
On the other hand, If the buyer has agreed to the full asking price, don’t get over-zealous and promise things in terms of stock and timings that won’t be achievable.
And never allow yourself to get into a situation where you can’t approach alternative buyers:
‘Granting a buyer exclusivity at the first meeting is another common mistake and one that your advisors will not let you make. I am aware of one meeting where a highly experienced buyer, as he was about to leave a very positive first meeting, asked the seller for a handshake on the deal. The seller didn’t hear properly and unwittingly led the buyer into thinking he had agreed exclusivity, on the shaking of hands.’says Goddard.
When time is of the essence and you want to convince a buyer that your business is better than any other on the market, it will be hard not to let your inner salesman out.
However, the art of negotiation is not an exercise in salesmanship: it has to be a balanced discussion. Think Kofi Annan, not Del-Boy Trotter.
Going for a classic sales pitch may well put your buyer off. Instead rattling off all your business’ assets, try a more measured approach: ‘This is what we do and what we can offer. How might that work for you?’
And, if you are confident in the opportunity you are offering, stand firm and don’t give in to nerves.
‘A mistake that sellers often make is underestimating how much the other party wants a deal to occur’ - Mark Jason, Managing Director at LINK Business Brokers.
There’s a lot more to the art of selling a business than slapping on a ‘for sale’ sign and hoping for the best. Brush up on these five key negotiating skills and you will be well on the way to selling your business.