Negotiating the purchase or sale of a business requires give and take to find solutions that meet and protect the needs of both buyer and seller.
Let’s say you’re the seller. You want to maximize the value of your business while minimizing risk and taxes. When the sale is closed you and the buyer need to be on good terms. You are probably going to train them. You will probably be lending them part of the purchase price. You may even be staying on with them for a period of time.
The purchaser is buying without audited statements, and even though they have done some diligence, they are buying largely on trust—trust that you have developed with them during the investigation stage.
So, moving forward, good relations are important to both buyer and seller. And good relations aren’t achieved in a contest of wills, where one “wins” and the other “loses.”
It’s far better to find options that meet both parties’ needs. And that’s where an experienced third party can help.
In Canada, business brokers often represent the interest of both seller and buyer. The broker commits to confidentiality, loyalty and full disclosure to both parties simultaneously. And they are trained in guiding buyers and sellers to common ground in negotiations.
Here are some key considerations.
Give to get. Give and take, and the need to listen to and understand the other party’s position, is needed on both sides. Keep in mind that the deal has to work for both of you. If the deal does not work for either of you it will not work at all.
Build a pattern of agreement
Start by looking for mutual gains. Your counterpart is working for the best deal they can get. Where do they overlap? Start with what you can get agreement on, and build a pattern so it’s easier to get a concession when one is needed.
It’s not personal. You and the buyer/seller have opposing objectives during negotiation, and emotions can run high. Avoid confrontation—learn to separate the person from the issues. Cultural differences increase the potential for misunderstandings and strained relations.
Focus on issues not position. Price, terms, closing dates, diligence timelines, inclusions and exclusions are all negotiable. Find common ground of shared interests.
Be prepared. Know what’s essential, optional and dispensable and the concessions you’re willing to make in order to get more of what’s important to you. Prioritize what you must have, what you’d like to have and what you don’t really care about. The latter can be a bargaining chip—what’s disposable to you may be important to the other side.
As you work through the negotiations, keep in mind your Best Alternative to a Negotiated Agreement (BATNA). You need to determine this before you start the negotiating process. If it’s clear that an agreement can’t be reached, then you have to be prepared to walk away.<
Keep an open mind. Be receptive to creative solutions.
In the end, you make the decision. Not your accountant or your lawyer or your family and friends. You must decide based upon what works for you.
If you’d like to do further reading on effective negotiation, I recommend Getting to Yes: Negotiating Agreement Without Giving In, by Roger Fisher, William L. Ury and Bruce M. Patton.
You can also check out my post: Cultural Differences: Negotiating the Purchase or Sale of a Business