Buying a business can be an exciting process, but it also comes with some challenges. Negotiating the best possible deal is one of them. Some people find themselves completely overwhelmed at just the idea of entering into negotiations. Knowing what to expect and preparing for the process can make a big difference.
What Can Be Negotiated?
When buying businesses, there’s more to negotiating than just trying to talk someone down on the price. The purchase agreements for most sales have fifty or more individual clauses that can be negotiated. Prepare to deal with the specifics, including non-compete clauses, inspection periods, adjustments, liabilities, lease assignments, and more, not just the price, down payment, and terms.
Structuring the Offer
A purchase offer is the first step toward the acquisition of a business. Unfortunately, buyers often have to make offers without as much information as they might want. Sellers may only want to offer access to certain sensitive information after a potential buyer has made an offer and signed a non-disclosure agreement. Structuring the offer properly is the best way to compensate for the fact that it may have to be made without all of the information.
Buyers shouldn’t hesitate to use a standard offer-to-purchase agreement obtained from a business broker or an attorney as a template. However, they should be sure to add in relevant conditions and contingencies specific to the business. Including a due diligence/inspection clause is particularly important since it allows the buyer to rescind the offer if the seller has misrepresented the business.
Understanding Asking Prices
Remember that a business owner puts forth an asking price, not a purchase price. Buyers should make offers that they feel comfortable with. Just be sure to make an offer that allows for future meaningful conversations instead of being insultingly low. The seller’s perception of the business’s value will always be different from that of prospective buyers.
Practicing at Home
For those who have never negotiated the purchase of a business, it can help to practice at home. Try to come up with a clearly articulated position regarding a specific point, then consider what the seller’s comments may be and how to respond to them. Considering various points in advance can make it more likely that the buyer will be able to get the most favorable terms during negotiations.
Getting Outside Opinions
While it’s fine to ask people not involved in the sale for opinions provided doing so won’t violate the non-disclosure agreement, the only person who can negotiate the purchase of a business is a buyer. Accountants, lawyers, and other professionals may have opinions, but few are experienced in the art of negotiating deals, and they may not understand the specifics of the situation.
Listen to input offered by relevant professionals, but don’t allow it to influence areas of the negotiation process that are unrelated to their fields. In other words, accountants can offer helpful opinions about accounting. Lawyers can help buyers understand the legal aspects of the deal. A business broker can facilitate negotiations. Only a buyer can decide whether the terms of an agreement are acceptable.
Effective Negotiation Takes Practice
Effective negotiation requires practice, so try not to get discouraged. There will be setbacks, and neither the buyer nor the seller can win every point. Prepare well, decide on priorities, and be patient. The process of negotiating a business purchase takes some time.