Member Article

Six essentials of negotiating the best price for your business

Anybody can put a business on the market, but negotiating the best sale price is a different ballgame altogether. In a typical business sale a lack of negotiation skills can cause dramatic negative swings in the final sale price. Despite plenty of preparation, if you don’t know how to negotiate, all of the hard work that gone before can be undone in a single meeting! With thousands and even millions riding on a successful sale, here are my top tips on how to increase your chance of success.

1. Never forget the principle of successful negotiation – strength

The key to successful negotiation, whether you’re selling a business or a car, is to understand how to operate from a position of strength. That’s why packaging your business as a strategic sale and not just as a pure investment is always a good play. In other words, if the sale of your business helps a previous competitor or quickly adds customers to the bottom line of another synergistic business, you’ve just created a position of strength for yourself.

2. Avoid selling because you have to

Even though some sellers don’t have a choice over when to sell their business, in most cases they do. Unless the business is about to go under, most sellers have control of when they put their business on the market. Preparing far in advance allows you to move from a position of strength to maximise your opportunity when it comes to sitting down at the negotiation table.

Long term preparation would include reducing the cost base of the business and increase the sales and revenue in strategic high value areas.

3. Valuation credibility

For a valuation to hold water in the mind of a buyer the business offer and sale price should add up in terms of it being rational and logical. Too often we see business owners who talk to a couple of business transfer agents and brokers and come up with a sale price based on some pretty flimsy assumptions. For example, the valuation strategy that Financial Power recommends to its clients involves a very strong valuation and packaging phase that will stand up in the face of some of the most stringent due diligence.

This type of pricing and packaging is essential if you want a valuation that will give you the strength you’ll need during negotiations.

4. Make sure you are dealing with more than one buyer at a time

I think we’ve all seen how the sale price of anything goes up when you’ve got multiple people bidding at the same time. Selling a business is no different. That’s why it’s essential that you find a way to get your business into the marketplace so that all of the right buyers see it at the same time.

Sometimes it’s best to list the business online but in other cases it’s not. The context of your sale and how strategic it is will affect that decision. Again, getting the right buyers to the table at the same time is something that Financial Power strongly recommends to its clients. 5. What to concede and when to compromise

There is always going to come a time during a negotiation where a buyer will ask you to make a concession. This may be a financial or price based concession, or a time and effort concession. Either way it will cost you.

The worst time to decide to compromise on any point is in the middle of negotiations. This is the time when you’re most tempted to say ‘yes’ especially if you feel close to closing the deal. Instead, be very clear before starting negotiations what you will give way on and what you won’t. This avoids big mistakes during the final phases of putting the deal to bed.

6. Patience and the courage to lose

Being patient always pays dividends. When selling a business patience is often about ‘looking’ patient even though you want the deal to happen as soon as possible. The person that shows they want the deal to happen sooner than the other party is nearly always at a disadvantage.

The good news is if you’ve set things up right, most aspiring buyers can rarely hide their enthusiasm. That’s what you’re aiming for. This is another reason why making your business a strategic purchase as well as a good investment is a core strategy we promote here at Financial Power.

This was posted in Bdaily's Members' News section by Trevor Wilson, Financial Power .