The art of negotiation

By Lee Rossini

In the last few articles, we have discussed the process of selling your business. However, before getting to this point, you will most likely be called upon to negotiate the deal. Although we have all had to engage in some form of negotiation at one time or another, negotiating is an art form. There are some basic negotiating techniques that are very useful to know when you are selling your business.

What is meant by the term ‘negotiation’?

Negotiation is a process by which compromise or agreement is reached while avoiding arguments and disputes. Effective negotiation means actively planning, thinking ahead, staying cool-headed, analysing the position of the other party, knowing when to make a move and when to concede. To do this successfully, the abilities needed include communication, persuasion, strategizing and cooperating. A successful negotiation is focused on finding the middle ground that is acceptable to both the seller and the buyer.

Guidelines when negotiating the sale of a business

• The seller should not accept the first offer that is made for the business (unless there have not been any other offers and it appears unlikely that there will be any in the future, or if the offer is too good to refuse).
• The seller should clearly state if a term or condition is unacceptable.
• The seller should be able to justify and explain how they arrived at their selling price.
• The seller should not lead a potential buyer to erroneously believe that several offers have already been made.
• The seller should not threaten or insult prospective buyers. This sounds far fetched, but it is easy to lose your cool during a negotiation process especially if the buyer makes negative comments about the business. The seller should remain calm and unemotional otherwise they could lose the upper hand.
• It is important to acknowledge points of common interest.
• If possible, the seller should not negotiate on the price of the business, rather focus on negotiate on the final package.
• Time should not be an issue. The seller should be well-prepared and not negotiating under time pressure unless unexpected circumstances have arisen. Negotiating under time pressure places the buyer in a stronger position.
• If possible, the seller should refrain from letting a prospective buyer know what their deadline is until negotiations are at an advanced stage.
• The seller should use open-ended, leading and probing questions such as ‘What if…….?’ ‘How much……….?’ ‘Would you accept …………?’ or ‘Could we………..?’. Use these questions and others to unlock the motivations of the buyer and the direction you should take during the process.

Confidence is key in the negotiating process. If you are unconfident, it is easy to feel intimidated and you may not be negotiating in your own best interests.  If this is the case, rather walk away and find an agent to negotiate on your behalf before serious damage is done. A canny, experienced buyer with superior negotiating skills will quickly back you into a corner if you are in over your head. Before putting your business on the market, prepare for the process by talking to experienced negotiators and reading about the skills and techniques needed. Learning as much as you can about how to effectively manage the negotiation process will go a long way towards securing a positive outcome.