No offence - but you’re probably a terrible negotiator.
Don’t take it personally, the majority of people are terrible negotiators. Have you ever tried to sell your couch on Facebook Marketplace? It takes so much time, leaves you emotionally drained and little faith in humanity.
Part of the problem is that many people have the wrong idea of what good negotiation looks like:
That bird might think it’s doing a good job getting what it wants, but the Galapagos are a tight-knit community. But negotiating like that won’t get them very far in the business industry.
The reality is effective negotiations are really anti-climatic.
There shouldn’t be any screaming, ripping up contracts in people’s faces, or storming out of a boardroom dramatically.
Rather, a good negotiation requires compromises, problem-solving, teamwork, and strong communication (boring, we know). Yeah, it’s not as cool as Brian Cox makes it look in Succession, but it’s A LOT more effective.
Take it from us, our team has successfully sold over 250 businesses, where we often coach both Buyers and Sellers on how to effectively negotiate with one another. Let’s just say that closing those 250 deals hasn’t been a “painless” process…😬
But instead of complaining about it, we want to use our pain and suffering to your benefit (our pain is your gain). We’ll start by highlighting what makes someone an effective negotiator in the purchase and sale of a business.
How To Become a More Effective Negotiator
1) Write down deal breakers before you start the process
Before you publish your listing or take your business to any buyer - write down what deal terms are important for you. A few examples:
- How many hours of training & transition will you include in the purchase price? 2 weeks or 2 months? 80 hours or 200 hours?
- What is your absolute minimum purchase price you need to accept a deal?
- Are you willing to provide seller financing? (you can learn more about seller financing in our free online exit-planning community)
Having these key deal terms written down is key to holding yourself accountable (and rational) throughout the deal process. As this helps us prevent a common mistake - moving the goal posts of the deal.
2) Don’t move the goal posts
Advisor: “Congrats! We just received a full-price offer for $1,200,000 with a 60 day close”
Seller: “That’s great! Everything looks good, I just countersigned it and sent it to the Buyer”
**45 days later **
Advisor: “Hey what happened? Why did you terminate the deal?”
Seller: “The offer price was too low, I was thinking it over and I need at least $1,400,000 to make a deal work for me. Can you draft a counter-offer back to the buyer?”
We wish we were making the above situation up, but we've been involved in more than one transaction where this has happened.
Now you might be thinking, wow that Seller is being completely unreasonable, and you would be right - but we’ve seen very rational people fall into this trap when selling their business.
Now this doesn’t mean you can’t change the terms of a deal. But big things (like the asking price) are difficult to change after you’ve accepted an offer. Just remember that a signed offer establishes the general rules (goal posts) moving forward. This doesn’t mean that these goal posts are set in stone, but if you move the goal posts mid-game, the other side of the deal may walk away.
3) Put that email on simmer before sending
Our digital world has us more connected than ever - making the communication between Buyers, Sellers, Brokers, and Accountants/Lawyers easier than ever. This is both a blessing and a curse.
The curse is that it is very easy to send a hot-tempered email in the heat of a deal, especially on a Friday night after working hours. Our advice? Remove the other sides email addresses from your draft and let that draft sit overnight before hitting send. If you still feel the same way the next morning - fire that email off with as much, “as per my previous email” snark as you like. But just remember, selling or buying a business is extremely stressful and comes with a lot of emotion. This makes it even more important to not let your emotions cloud your judgement or taint your email with a passive aggressive tone - because this is a quick way to kill a deal.
4) Put yourself in the other sides shoes
When buying or selling a business, it is important to keep the perspective of the buyer/seller and, “walk a mile in the other person’s shoes.”
Hey, that visualization isn’t being productive. Even if you think the Buyer/Seller is being a clown - you still need to try and understand where they are coming from. More often than not, it’s probably just a misunderstanding.
5) Remember that “start high and meet in the middle” doesn’t work with business sales
Putting ‘or best offer (OBO)’ at the end of your Facebook Marketplace ad might be an effective marketing strategy for that $80 toaster you really know is worth $20 - but that doesn’t work when selling your business.
Guess what happens when you overprice your business hoping that someone will meet you in the middle? You won’t receive any offers and will scare-off legitimate Buyers.
The same goes with Buyers - don’t low-ball the Seller hoping they will accept it out of desperation. What’s more likely to happen is that you’ll offend the Seller and get told to kick rocks. We recommend that you either submit an offer you think is likely to be accepted or look for another business where you are align closer on valuation.
Negotiation is more art than it is science. Particularly, when it comes to an emotionally-charged asset like someone’s business. For Buyers, it’s important to remember that the Sellers are potentially selling their lifelong work as a means of fuelling their retirement. For Sellers, this could be the largest amount of money a Buyer has put at risk. Both of these scenarios create a lot of fear and can quickly cloud people’s judgement.
So remember that empathy, communication, and compromises are your friends and that bullying, manipulation, and fraud, are not.
Want to learn more tips on buying and selling businesses? Join our free online exit-planning community.