Jennifer Hendrickson
My husband is, among many things, a trained classical musician and he’s often asked to explain the difference between a violin and a fiddle. “It depends on whether you’re buying it or selling it,” he says – and he’s not wrong. A buyer wants to depress the final sale price and the seller wants to maximize it. This notion also applies to a buyer and seller when they’re negotiating the sale of a business. The buyer wants the lowest price and the most favorable terms possible. The seller wants the highest price and to protect themselves while minimizing their tax bill. Here are a few ways you can help your business broker bridge the gap when negotiating a deal for you on either side of the table:
- Try honestly to see things from the other person’s point of view. Work to understand what is really, truly important to the person on the other side of the table and work with your broker to find creative ways to provide them with the non-negotiables. For instance, if you are a seller and you know that one of the biggest sources of heartburn for the buyer is learning how to run the business, consider asking them to pay you to stick around for an extra few weeks or months. Perhaps if you are a buyer and you realize that asking the seller to carry back a note is making him/her nervous, offer to buy a life insurance policy with the seller as the beneficiary so that if something should happen to you, the note would be paid in full.
- Avoid trying to eliminate all risk. A buyer might be concerned that employees will leave the business after the sale – leaving the new ownership in a lurch. That’s a reasonable concern and one that pops up a lot. It is not; however, reasonable to ask the seller to guarantee that employees won’t leave…this is simply a risk involved with buying a business. A seller can’t be responsible for what employees will or will not do after the buyer takes ownership. We have a lot of best practices regarding employee communication during an ownership transition; doing it incorrectly usually either drops the business’s value or kills the deal, and can even end up killing the business altogether.
- Be willing to compromise on the small stuff. Resist the temptation to make everything a “deal killer” so that you get your way. Eventually the other side will grow frustrated with the ultimatums and will find someone else to deal with.
- Be transparent. Sellers: Buyers can usually handle some negative news about you losing a client or an employee issue that you’ve been dealing with, but they will start to question every element of a deal if they discover that you haven’t been completely open with them. Trust is paramount to a successful transition.
- Stay connected with your broker at every stage. There is a reason why brokers don’t want the buyer and seller talking directly without them present. Business ownership transition is a VERY emotional time for the buyer and seller and your business broker can remain neutral so that everyone can stay focused on the deal and not how they feel about it. The more your business broker knows about the buyers and sellers, the more you can rely on their expertise to navigate strange situations.
Do these when negotiating a deal and you stand a better chance of moving toward a win-win transaction. When you’re ready to buy or sell a business, contact us to start the conversation.
