How to negotiate a business sale?

Negotiating your business takes skill and finesse to reach unanimously agreeable terms for the business sale between yourself and the buyer. We will spend some time in this guide looking at FIVE key negotiation skills to close the deal smoothly.

March 2022.3min read time
Negotiating your business takes skill and finesse to reach unanimously agreeable terms for the business sale between yourself and the buyer.
We will spend some time in this guide looking at FIVE key negotiation skills to close the deal smoothly.

What skills do you need to negotiate your business?

1. Inter-personal

Inter-personal skills refer to one's ability to interact or communicate well with others. Although this is a fairly obvious skill you would require, it is often mistaken when commonly used.

It is best to meet with the prospective buyer before the negotiations begin, touch base; discuss overall goals, and build relationships. Use this sit-down as an opportunity to discuss overall goals and build a formal relationship.

Lawyers and financial advisors are expected to enter a business sale during due diligence. Before beginning negotiations with the buyer, discuss your goals for this business sale, and your advisors will help you reach that goal or suggest some alternatives.

At this point, both parties will have some idea of what their asking price may be. However, a definitive figure will not be reached until investigations have been carried out and both parties know what is on the table. 

Most importantly, ask questions and get an idea of what the buyer wants from the sale. That way, you will have a clear picture of what you can and can't control and plan accordingly.

2. Honesty

Although it is pretty apparent buyers want transparency and honesty, you need to think about how openness can influence the business sale and how it is followed through.

An excellent example to consider is to think from the buyer's perspective- think about how they'd feel investing time and money into your business and whether they feel the potential of your business outweighs the risk and cost. 

However, being too open can leave you less leverage in the negotiation. There is a slim margin between informing buyers of a competent deal and giving them the upper hand.

3. Flexibility

Like most transactions involving a buyer and seller, compromise always comes to mind. As a seller, you must be willing to bend on specific issues.

It is highly recommended to use a business intermediary when the more delicate business details are being discussed.

Ideally, you want to split the flexibility of your negotiation into three stages:

  • The highest, ideal price you would like.
  • A compromised price, but manageable.
  • Walk away from the sale. 

At stage 2, you are still in a good position; The buyer feels they are in control, so they will have little leverage on other aspects of the deal.

It is crucial to remember that you and the buyer are looking for the right price, something reasonable and justified. Being impatient or inconsiderable will not help the process.

4. Self-belief

This skill focuses on your mindset and knowing your worth. 

Remind yourself of the time, money, and hard work you have put into your company and the assets it has to impress a potential buyer.

Be cautious of how low you will consider dropping the final price to; there is a limit to how low you can lower it until it's better to walk away.

Granting a buyer exclusivity too early will leave you with no options for alternative buyers, thus giving the buyer more leverage and more risk if you abort the sale. 

5. Restraint

Advertising your business to a buyer will often draw out your salesman's side; setting up a sales pitch may push your buyer away.

Hence, it is best to take a more measured approach and adjust the sale of your business to the buyer: 'This is how the company operates. How might this work for you?' 

 

Negotiating your business will inevitably come with a standstill and contingencies that may take time to manoeuvre around. Working on these five negotiating skills will undoubtedly be a ton of help. You'll be receiving that final, all-important handshake before you know it.