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.
Table of Contents
- Being a considerate seller will help ensure the process goes smoothly for all involved.
- Negotiations involve many moving parts. Preparation is key to avoiding pitfalls or shortcomings and remaining focused on what matters most.
- Your business broker has the expertise and knowledge to drive the deal forward. Trusting them is paramount to reaching an agreement that works for both parties.
Analyze Both Sides
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.
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.
Seven 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:
- Focus on The IssuesIt 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.
- Be Aware of TacticsNot 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.
- Get Everything in WritingFrom 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.
- 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.
- Known Your LimitBefore 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.
- Get AdviceAs 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.
- Beware of TimeAn 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 Ten 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 BrokerIt 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 EverythingFor 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 ResearchIf 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 ItEarly 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-NegotiablesThere 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, ClarifyRepeat 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 AssumptionsWhile 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 PictureIt’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 BuyerIt 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 CommitmentsWhile it might be tempting to think you know what the other side is thinking, avoid this mindset. You are In the throes of negotiations, 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.
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.