Negotiation Tactics for Buying a Business
Chances are, this is your first time buying a business, as well as your first and only time entering the negotiation process. Without prior experience you may not even know how good, or poor, you are at it.
You’re trying to buy at the lowest price possible. Likewise, they seller/broker will try to maximize the deal to get the highest price. Negotiations are a complicated, phased process to get both sides to meet somewhere in the middle to complete the transaction.
There are some helpful negotiation tactics that are critical to success when trying to close a deal. Using any or all of the following will put you in the driver’s seat.
Have a Walk-Away Number in Mind
Before you even begin, have an end point in mind. Knowing your walk-away number ahead of time will take some research, but it’s important to come prepared with one. No matter how things go during negotiations, stay disciplined and stick to it. If the seller truly wants to sell the business, they’ll do what they can to work with you. Being ready to walk away gives you the power.
Don’t Be Afraid to Make the First Offer
Despite what you may have heard, there’s a clear advantage to making the first offer. Making the first offer is also called the anchoring technique because you’re dropping the anchor, so to speak. This offer will have a direct affect on the direction the negotiations take. Because you’ve done your homework due diligence, you should feel confident in your offer.
Refer to Your Sources When Making an Offer
When you determined the value of the business, chances are you looked at a few independent sources to come up with a number. When you make your offer, show your sources as evidence. It’s hard to argue with an objective, third-party source. This will give you a leg up.
Concessions Should Be Different But Equal
In negotiations, in order to get something you have to give something up. That’s Negotiations 101. When it comes time to give something up, make sure the other party knows it’s something of value to you. But don’t give up all at once. If possible, concede in installments. On the other side of things, demand they make concessions of equal or somewhat equal value. Continue this strategy as you inch closer to the end goal.
Choose Your Battles Wisely
With the wealth of things to be negotiated, some outweigh others in terms of importance to you in the big picture. Don’t spend needless time battling over items that are on the lower end of the scale. They’ll take time and energy away from others that you should be focused on.
Our last piece of advice is this: if after going back and forth you are unable to agree on what you consider a fair price and favorable terms, be prepared to walk away. Even if it means walking away empty-handed. You’ll be better off in the long run.