Becoming a Better Business Broker Day 6: Negotiation Tactics for Business Brokers

April 17, 2024

Welcome back to Becoming a Better Business Broker in 30 Days!

This concise series title describes exactly what we hope you get out it - becoming a broker that can close more deals with less work.

If you missed yesterday, check out Becoming a Better Business Broker Day 5: Being Effective At Deal Communications.

Today, we're covering the area where we can add the most value as brokers - negotiation. Before we get started, if you haven't already read it, add Never Split The Difference to your reading list 📚 as it provided a lot of inspiration for this article and is super relevant to business brokerage.

Mastering the Negotiation Process

Negotiation is at the centre of everything what we do as brokers - from setting a reasonable asking price with the seller to negotiating an acceptable LOI with the buyer.

As with most things in the business world, developing a system for your negotiation process will yield far greater results. But before we get to the negotiation table, here are a few keys to keep in mind that will make you a better negotiator:

The Business Broker Negotiation Process Flow

1. Build Rapport

In Split The Difference, author Chris Voss talks about using 'Mirroring' the other parties behaviour to build rapport. This is an essential step in the negotiation process. Example? Let's say you're working on a blue-collar construction deal - don't show-up to the meeting wearing khakis and an ascot - try Wranglers. This extends into learning the actual terminology of the industry you're working on - as your seller will know instantly if you try and fake it.

To develop trust, use skills from Day 5 to ensure your communication is clear, respectful, and empathetic from the very beginning of your interactions with buyer & seller. This sets a positive tone for negotiations.

2. Prepare a Deal Sheet

A Deal Sheet is a great tool for preparing a negotiation as you write down all the 'Deal Points' that each party brings to the table. If it's a potential partnership, does Partner A bring access to exclusive marketing channels? Does Partner B bring access to a unique product?

You can create multiple Deal Sheets throughout the transaction process - from the initial seller valuation call (figure out their goals), to negotiating an LOI, to sticking points in due diligence.

But let's use a tangible example by creating a fictional Deal Sheet for an LOI negotiation:

From this exercise - what did we learn?

  • The Seller is very proud of their business and still has 'gas in the tank' to keep operating.
  • The Buyer is being mindful of cash flow and prefers de-risking a deal with an earn-out vs. seller financing.
  • There is a valuation gap between Buyer and Seller.

Possible Solution: help negotiate a structure a deal where either the Seller rolls over equity or participates in a 12-month earn-out to help with the transition. Structure the deal where the cash at closing equates to a 4x EBITDA multiple with earn-out terms to get the final valuation to 5x.

3. Learn Deal-Making Improv

How many times has a Seller or Buyer told you their list of demands and you're listening on the phone with this face:

Awkward The Office GIF

Our profession is tough! We like to compare deal-making to improv. How on Earth are we making this comparison? Well, just like many improv students, business brokers aren't sure when their next pay cheque will arrive 😂

Kidding, why they're similar is that both professions need to develop the skill of 'Yes - AND?' where you have no idea what your co-actors (deal professionals) are going to throw your way - but it's your job to make it work. Here are some examples:

  • Buyer gives you a last-minute price reduction? Yes AND how about an earn-out instead?
  • Seller decides they no longer want to sell? Yes AND what about your goal of spending more time with your kids? How about rolling over equity instead and continuing in an Advisory role?
  • Banker says the Buyer needs more cash to get the deal done? Yes AND is the Seller open to increasing their seller financing to qualify as equity in the deal?

You get the point. Learning to juggle multiple flaming torches while riding a unicycle is all part of the fun of being a business broker.

4. Solving Conflict

This is a big one. A few things are certain in life - death, taxes, and misunderstandings between buyers & sellers in small business brokerage. You can avoid these issues by always summarizing the agreed points (in writing via email!) to avoid misunderstandings later. At worst, you will have a running repository of the conversations so far.

Perhaps more important - you need to know when a deal is dead.

Unfortunately, not all deals are meant to close. If it feels like you're contorting yourself like an acrobatic archer to get a deal done - it's probably a sign the deal is dead*. It's time to go back to the buyer pool and find a buyer whose Deal Sheet matches closer to that of your seller.

*Side note: that was our 2nd circus analogy in this article, perhaps that says something about our industry? 😅 🎪

Conclusion: Becoming a Master Negotiator

Negotiation is really where business brokers shine, adding significant value to the transaction process, sometimes from the simple act of emotional support. By preparing a Deal Sheet, building rapport, employing deal improv, and focusing on creative problem-solving, you can navigate even the most challenging negotiations with confidence.

As a business broker, our goal should focus on making sure both buyer and seller feel they got most of their demands (not all), but above all else - feel respected.

Stay tuned for Day 7, where we'll delve into the intricacies of managing post-sale transitions, ensuring a smooth handover and maintaining the value of the business. Your journey to becoming a better business broker continues, and each step forward is a step towards greater success and satisfaction in your role. Let's keep moving forward, one negotiation at a time.

If you're enjoying this series make sure to not miss tomorrow's article, Managing Post-Sale Transitions.

If you want to learn more about automating your business brokerage with DealBuilder, please visit our site or book a demo here.

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