How To Negotiate The Sale Of Your Business

A career as a business broker prepares you for negotiations regarding the sale of any company. However, business owners tend not to have this same skill set. When selling your business, you could be left uncertain, frustrated, or deadlocked about terms or details pertaining to the sale. Once you have reached the negotiation phase of a business deal, often, the end is in sight. But, how to get there can take considerable time and effort.

At Sunbelt Canada, our brokers have been a part of the sales of thousands of businesses. We’ve seen what works and doesn’t and learned how to refine our process to ensure the best outcome for buyers and sellers. If you’ve recently listed your company or are gearing up for the due diligence phase and are concerned about how to negotiate the sale of your business, this post will help you prepare accordingly for the next steps.

Analyze Both Sides of the Deal

It takes two to make a deal go through. As the seller, this will be a period of reflection that may bring up significant emotions. Make no mistake — the buyer is likely also going through a similar emotional process.

Consider Yourself

It can be challenging to part with your business. Spending time over the years building it up, investing your energy and growing it into something you can be proud of is no small feat. As you prepare to sell, a range of emotions may overcome you. It’s common to feel fear regarding what you will do next, your legacy, and what will happen to your business, including your staff, once the sale is done. 

Invest in spending time with people you trust and sharing your concerns openly. Consider what made you want to sell in the first place, and avoid influences that could negatively impact your thought process. 

The sale of a business takes time. Negotiations can take up a considerable period during the process, so ensure you are ready, willing, and able to move forward. Should you feel uneasy, refer back to your valuation and know the level of risk you are comfortable with.

Consider the Buyer

First-time buyers are likely to act very differently than someone who has been through this process. While you might not know their exact thoughts, you can assume they are in a similar position as yourself, with plenty of nerves and anticipation. They might have mixed feelings about their ability to run your business, so ensure you have a training and transition program in place to ease them into their new position.

Many buyers will focus on the deal’s financial aspects rather than terms because they want to ensure they have a solid income moving forward. In addition, they will receive advice from their professional advisors that may skew their perception of the deal. Moreover, they’ll have to sell the negotiation results to their lender and immediate family to ensure they have their support. 

Understanding the thinking and emotions of the other side of a negotiation is critical to success. A reliable and experienced business broker who is a dual agent is perfectly positioned to gain the trust of both parties and assist them in coming to a resolution that works for both of them.

7 Tips for the Negotiating Process

Even though no two deals proceed the same way, some general tips can help you through the negotiation process. Here are our top seven:

1. Focus on The Issues

It can be tempting to focus negotiations based on the personalities or reactions of the people involved. Professionalism is key and will get you farther than dwelling on uncomfortable feelings. Evaluate what is stopping the deal from proceeding, and work from there.

2. Be Aware of Tactics

Not every buyer or seller will negotiate the same way. Although the person on the other end of the table may be unwilling to meet you where you are or employ strategies that you would not use, attempt to keep an open mind. An example is that the buyer agrees to your terms and then, before closing, finds something that they claim forces them to reduce their offer. All you can do is be prepared for these situations. Reading a book about negotiating might be worthwhile to understand the process better.

3. Get Everything in Writing

From the start of the deal to the very end, plenty of things can change in between. Take care to see that they are all clearly documented and accounted for throughout the process so details are clear on both sides. Avoid waiting until the end of negotiations to do this, as the work will be extensive, and there may be considerable gaps.

4. You Can Change Your Mind

Just because you have agreed to an initial concession does not mean you have to stick with it. Ensure you meet with advisors regularly and get thoughts from their perspectives. Do your best to refrain from emotional decision-making, as it can be detrimental to the deal.

5. Known Your Limit

Before negotiations, you should know your best alternative to a negotiated agreement (BATNA). Even if talks seem solid, something can always break down along the way. If you can’t reach an agreement, your BATNA will be the fallback and cause the least disruption.

6. Get Advice

As a business owner, you surround yourself with professionals like your lawyer, accountant, and in this case, your business broker. Take what they have to say under advisement, especially if you are uncertain about a decision. However, remember that this decision impacts your life the most. You get the final say.

7. Beware of Time

An adage that still rings true in business is that time kills deals. Stalling on either side, causing things to take longer than needed, can lead to an agreement that will never be finished. Heed the concerns of your broker if they feel too much time is passing for a successful deal to be reached.

Top 10 Negotiating Strategies

Entering into this phase is an exciting yet daunting step toward selling your company. Deciding how to negotiate the sale of your business is primarily up to you but will require the help of your broker. Consider the following strategies to help keep things on track.

Work with Your Broker

It is best to let your business broker handle negotiations. They can be impartial regarding emotions or bias and help the deal proceed naturally. They may also have insights into the thinking of the buyer. In any case, their neutral presence and trained expertise will work to your advantage.

Price Isn’t Everything

For many business deals, price is usually not the stumbling block on which a sale falters. Terms tend to be more important for both sides, but this might not be the case with someone new at buying or running a business. Consider the terms carefully. Sometimes, the devil can be in the details.

Do Your Research

If you are new to business sales or negotiations, embrace the power of doing plenty of research before you come to the table. That way, you’ll feel comfortable coming back with concessions where you can use market data and examples to bolster your position.

Ease Your Way Into It

Early in negotiations is the best time to get an easy agreement on certain concessions. Pursue those first, and then move on to ones requiring more compromise. Roadblocks, in the beginning, can be a red flag for both sides.

Select Your Non-Negotiables

There are likely some things you are unwilling to negotiate. That’s completely normal, and ensure your broker is aware of this before negotiations begin. Stand your ground unless the buyer will give you something of equal value in return.

Clarify, Clarify, Clarify

Repeat back to the buyer what you understood them to say compared to what they actually said. Being sure about their position is critical and eliminates miscommunications and guesswork when drafting concessions.

Avoid Assumptions

While it might be tempting to think you know what the other side is thinking, avoid this mindset. You are unaware of their specific drivers, and a false presumption could negatively impact the deal.

Consider the Big Picture

It’s easy to get lost in the minutiae of terms and concessions. Attempt to focus on the big picture as much as possible. This will allow you to move negotiations forward and remember why you are going through this process.

Think About the Buyer

It can be tempting to be selfish when making concessions, deciding on terms, and going back and forth. But you should always leave enough on the table so the buyer can survive and prosper. Having respect for the other side can make a difference.

Pay Attention To Commitments

While it might be tempting to think you know what the other side is thinking, avoid this mindset. You are in the throes of negotiations, and you might feel that making commitments will help the deal close faster. Often, they won’t, and then you’ll be stuck doing something while the agreement is incomplete. A good business broker will inform you only to make commitments after the transaction is finalized.

Insider Tips on Selling a Business in Canada

Selling a business is complicated. You need a professional who can walk you through the minefield of details.

Download free e-book

Other Considerations When Negotiating

When negotiating the sale of your business, there are other factors to keep in mind to help you facilitate a smooth process.

Build a Pattern of Agreement

Creating a pattern of agreement from the outset establishes a positive tone for negotiations. Starting with smaller points of agreement can foster goodwill and build momentum for tackling larger issues. For example, both parties can initially agree on minor areas, like the timeline for due diligence or the general structure of the transaction. This approach helps establish trust and encourages both parties to work collaboratively toward a successful outcome.

Give to Get

Negotiations are a give-and-take situation. Concessions can motivate the other party to reciprocate, leading to a balanced agreement. This shows your flexibility and willingness to find common ground, enhancing the likelihood of a mutually beneficial deal.

It’s Not Personal

Remember that negotiations are a business process, not a personal battle. Keeping emotions in check and focusing on the business aspects can prevent unnecessary conflicts. Maintaining a professional demeanour fosters an environment conducive to communication and productive compromises. While a buyer raising concerns about your business’s financial projections may feel personal, it’s important to remember that they’re just doing their due diligence to ensure it’s the right business decision for them.

Prepare

Thorough preparation is always the foundation of successful negotiations. Know your business’s strengths and weaknesses, as well as your goals and limits. 

Anticipating potential objections and crafting well-reasoned responses demonstrates your commitment and expertise, enhancing your position at the negotiation table.

Working with the Right Broker

At Sunbelt Canada, we have dealt with buyers from all industries and phases of business. We understand the process and are aware that determining the best ways to negotiate your business’s sale can be overwhelming. We tailor our services to work with individual owners and meet them where they are. 

We approach each deal and negotiation enthusiastically to get the best outcome on both sides. Our team often works with buyers and sellers, giving us an increased advantage as things progress. Are you ready to sell your business, or want to learn more about our negotiation process? Contact us.