Don't Leave Negotiations to the End!

Don't Leave Negotiations to the End!

If you leave negotiation to the end of the sale process, you will surely be disappointed. It’s well known in business sales that the buyer wants to pay as little as possible to protect the investment and the seller wants to get as much as possible in return for their hard work. None of these things involve business price. 

There can be a lot of emotional and personal baggage attached to every negotiation. Preparation well in advance of the negotiation phase will see you ahead of the game.

Roger Fry and William Ury in their book ”Getting to Yes”, put negotiation down to four main factors:

People, Interests, Options and Criteria.

 

Their suggestions:

 

You might think the parties are only arguing about price, but there is generally something else going on and you might not be privy to the underlying issues. Properly preparing for a negotiation is crucial to maximising your chances of success for your vendor client. Here are some things you can do to better prepare for such a negotiation:

The points below will help you arrive at objective positions on behalf of the vendor while keeping an eye out for the subjective factors that could be underlying it all.

1. Become an expert. 

It’s no secret that specialists are so much better at negotiating business sales. Not only do they know more about the industry they’re operating in, but they gain the respect of the people in the industry, by virtue of their knowledge and reputation.

2. Think ahead. 

Price is only one term of a sale agreement. The others are listed below: By paying attention to these and addressing them in your sales documents, you will be in a better position to control the situation on behalf of the vendor.

a. Financial Terms: 

i. Will all the money be paid up front?

ii. Will the balance of the money likely to be paid by way of vendor finance or vendor earnout?

b. Assets

i. What assets are going with the business?

ii. Can some assets be sold off if surplus or not of value?

c. Non Compete

i. Does the vendor know what terms of a non-compete clause they are prepared to offer?

e. Ongoing vendor involvement

i. Is the vendor happy to work for an extended period in the business to facilitate a smooth transition?

ii. What wages will the vendor accept for such a role

f. Staff:

i. The staff roster is a key consideration in the sale of a business. 

ii. Has the vendor told key staff that the business is for sale?

iii. What access does the buyer want to have to staff before signing on the dottted line?

g. Legal

i. Has the vendor had an audit of legal affairs to ensure a clean transaction can take place.

ii. Are all intellectual property affairs in order - Trademark, patent, etc?

iii. Are all leases in place and any agreements to lease formalised in writing?

iv. Does the vendor have a lawyer that will respond in reasonable time frame to the demands of a business sale transaction?

h. Financial

i. Get the usual financial evidence the vendor relies on for the sale.

1. Financial statements. 

2. Tax returns of business and directors.

3. Cash flow statements

4. Historical sales figures to show trendlines.

i. Due Diligence:

i. Draw up a list of documents that will be available during due diligence.

ii. Will the vendor allow the purchaser and exclusive dealing period while doing due diligence?

iii. Determine in advance how long a due diligence period the vendor will allow during any exclusive dealing period.

The above points are things that a purchaser is likely to ask about during the negotiation or contract stage. By addressing them early, the vendor will be well placed to negotiation on solid ground and avoid delays and roadblocks during the process.

3. ractice effective communication: 

Enhance your negotiation skills by practicing active listening, effective questioning, and persuasive communication techniques. This will enable you to build rapport with the seller and influence the negotiation process, leading to potentially uncovering underlying issues.

 

5. Quote market comparables: 

Research and gather information on similar businesses that have been recently sold in the market. This knowledge will provide you with benchmark data for establishing the value of the business when the discussion comes down to price.

6. Prioritise relationship building: 

Recognize that negotiation is not just about the deal but also building a relationship between the parties. Act professionally, establish trust, and find common ground to foster a positive negotiation environment. Where possible, arrange personal meetings between vendor and purchaser.

Tags: selling small business entrepreneurs

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