The Art of Negotiation when Selling a Business
Selling your business involves a number of high-level skills and some vital tools if it’s going to be successful. But, there’s also a certain amount of art to it. For instance, after a qualified buyer has been found, and they’ve verified interest and funding, negotiating a final deal is much more about art than skill.
Negotiation is – at its core – a very human interaction. It’s not just a series of equations, just as buying and selling a business isn’t just a simple, emotionless transaction.
For that reason, there are a number of emotional and psychological aspects to successful negotiation that don’t come naturally to every business person – even if your company was built on your own sales acumen.
Here are four basic concepts that will help any business owner approach negotiating the sale of their business in a skillful, and even “artistic” way, offering a much better chance of closing the deal and walking away satisfied with the results.
Prepare well ahead of time
While you likely know your business inside and out, and you may have done even more deep diving into the finances and other nitty-gritty in recent months as you got ready to sell, that doesn’t automatically mean you’re fully prepared for this particular sales negotiation.
Every negotiation is inherently different because the parties, the timing, the surrounding circumstances, and even overall economic conditions change – sometimes on a day-to-day basis.
So, to enter into a negotiation with confidence and a level of comfort, it’s important to spend time in the days leading up to it preparing specifically with this buyer and the current circumstances in mind.
You’ll want to have all pertinent data in hand, up-to-date and well organized. And, you’ll want to be intimately familiar with all of it. Every surprise that comes up during your discussion puts you in a weaker position as a negotiator, so it only makes sense to do your very best to make sure that doesn’t happen to you.
You’ll want to anticipate the buyer’s questions and objections to the best of your ability. Whether they’re coming into the discussion planning to “play hardball” or not, every serious business buyer is going to have some tough questions they’ll want addressed, and they’re likely to have concerns that they feel warrant significant adjustments in the price you’re asking, or that may even be deal breakers in their minds. It’s to your advantage to realistically anticipate all of these as best you can. An experienced business broker and/or a lawyer experienced in business sale transactions can be invaluable aids in this process.
You’ll also need to have your own goals and minimum requirements firmly established. In other words, you need to know both how much you’d like to sell your business for, and how little you’d be satisfied walking away with. The same goes for any other non-financial matters, including intellectual property, personnel details, and so on. By having these items firmly fixed in your mind before negotiations begin, you can confidently negotiate from a position of authority, rather than being pushed around as the discussion evolves and ending up signing on the dotted line and later regretting having done so.
Negotiate from a “position of power”
While some “experts” recommend approaching negotiations as bullying sessions where you should muscle your way into achieving the best possible outcome for yourself, this usually only succeeds in making the negotiation an uncomfortable confrontation, and may even end up hurting your prospects of success.
However, you do want to enter into negotiations from a “position of power”, meaning you have advantages over – or, at least, equalities with – the other party that allow you to negotiate confidently. Here are some tips to achieve this powerful stance:
- Make eye contact – Nothing expresses fear, unease, or even dishonesty like an inability to make eye contact when you’re talking with someone. It doesn’t come naturally to everyone, but it’s vital in circumstances like this for you to be able to calmly and confidently look the other party in the eye as you converse. It establishes a level of trust, respect, and dignity that are vital to a successful negotiation for both parties.
- Avoid apologizing or making excuses – While being honest and straightforward about any negative points of discussion regarding your business is important and appropriate, the sales negotiation is not the time to apologize or make excuses for existing issues. If the buyer has done their due diligence appropriately, they should already be fully aware of the situation, as should you. Acknowledging an issue promotes respectful discussion. Apologizing for it almost demands concessions.
- Always be ready to walk away – Since you’ve established your goals and minimum requirements for the sale, it’s vital that you make it clear you’re always ready and willing to walk away from the negotiation without selling. This may be difficult, especially if your circumstances are such that you really do need to sell soon. But if that’s more important than getting at least your minimum requirements out of the sale, then something is off in where you’ve set your minimum requirements. Obvious desperation on your part signals that the buyer can keep pushing the price down and the concessions up.
All of this comes back down to thorough preparation. If you’re well-prepared, you’ll be confident enough to look the buyer in the eye, avoid apologizing for issues you’re both aware of, and stick to a set of established goals that will dictate a successful sale.
Understand the other party
Another major flaw in the intimidation-based negotiating style is its focus on psychologically manipulating and pushing the other party to agree to things that aren’t in their best interests.
A much better method for successful negotiation is to seek to understand the other party completely and to approach the negotiation from the standpoint of seeking common ground where you’ll both be happy.
Take time to really listen to this individual, both before and during the sales negotiation. Focus on identifying their business and personal goals as they relate to buying your business. Then, concentrate on locating areas in both your and their goals where you can agree and support each other in achieving them.
These areas of common ground form the basis of a win-win agreement, which is the final tip for a successful negotiation:
Shoot for the win-win
It may almost seem cliche at this point because this tip is given lip service quite often. But the fact is, a win-win agreement should always be the goal when negotiating.
Clearly, it does you no good to insist on your own way at risk of forcing the buyer to walk away. At the same time, it’s not beneficial to keep giving in and making concessions in order to make the sale, only to walk away from the table feeling like you’ve been taken advantage of. Finding an agreement that satisfies both parties’ goals, on the other hand, ensures a productive and successful negotiation that you can both walk away from feeling good.
By putting these basic tips into action before and during your sales negotiation, you’ll be able to apply both skills and art to successfully selling your business.
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