Negotiating a business sale: 4 myths debunked
When it comes to selling your business, both you and the potential buyer want to get the best price. So there’s often a fair amount of negotiation involved to land on a price that both sides deem fair.
Negotiation can be a tricky thing to get right and, to compound matters, there are a number of myths about the process that we feel need addressing. Below we’ve shared five.
Myth 1: Negotiations are competitive.
Reality: Negotiations should be co-operative, not competitive. While both parties will be striving for the price they think is right, negotiations run far smoother when both sides co-operate, exchanging information and resources to get to a happy conclusion faster.
Conclusion: Both parties want the sale to happen. So get to know the potential buyer of your business. Why are they interested in your business? What are their long-term plans? Will you be able to share any wisdom or advice to help them? Really get to know and understand who it is you’re dealing with.
Myth 2: Negotiations involve bargaining.
Reality: Bargaining is competitive; negotiating should be co-operative. Bargaining focuses on who is right; negotiating focuses on what is right. Bargaining agreements never last because the losing party always insists on the chance to come back and get even.
Conclusion: Be flexible, but understand your worth. You must be prepared to be flexible with some of your goals, understanding that you won’t get exactly the deal you want if you’re stubborn and unwilling to negotiate properly. Here’s where a good business broker earns their money, helping sellers deal with the finer details of a sale, and advising them when to be more flexible, and when to stand their ground.
Understanding where the value is in your business is also key. Knowing what that value is worth will help when it comes to arguing your case for a specific price, and help your potential buyer understand why they should pay it.
Myth 3: Negotiating always involves giving something away.
Reality: Nobody wins in if an element of the deal is simply reduced because both sides end up getting less than they want or need.
Conclusion: Have a walk-away number and make strategic concessions. You should enter any negotiations with an understanding of your “walk-away number”. To get to this number you’ll need to understand what you would ideally like to get for your business, what you’d be happy to get, and what you would walk away from. The strength of the business and your own personal goals and situation will influence these numbers.
Concessions will often have to be made in a negotiation, but they can yield positive results. Take some time to consider what you’d be willing to concede, make sure you let the buyer know you have given up something of value when you do, and let them know how the favour can be returned to get something back from them.
In short, don’t give something away without getting something in return.
Myth 4: Effective negotiations involve the use of tactics, trickery, and manipulation.
Reality: Honest, ethical negotiators never try to manipulate or deceive the other side..
Conclusion: Be honest. Honesty in negotiations is key to a good relationship between you and the potential buyer of your business. Also, business buyers will be extremely thorough with their due diligence, so the chances are your dishonesty will be discovered anyway and you’ll gain nothing.
The bottom line
Rather than approaching negotiations as a mutual problem-solving process, many CEOs see it as a kind of mental and verbal sparring session, where the side with the sharpest mind, toughest resolve, and most aggressive tactics emerges as the victor. Such an approach often leads to win-lose or, worse, lose-lose outcomes, and their companies suffer in the long run.
Adopting a more productive negotiating mindset requires getting rid of some outdated notions about how to negotiate effectively.
As we’ve shown, negotiating business sales has nothing to do with bargaining, compromise, and competition. To create win-win outcomes, both sides must:
- strive to understand the other person’s wants and needs
- attempt to solve the other person’s problems as well as their own
- adopt a mindset of flexibility rather than rigidity
- focus on “enlarging the pie” rather than dividing it up
- always aim for win-win outcomes.
While this approach may sound a little different to what you’re used to hearing and reading about negotiation, or a little “soft”, (especially for the battle-hardened CEOs and MDs out there, who enjoy going toe-to-toe with the other side), the fact is all of the advice we’ve shared above will dramatically increase your chance of creating a deal that both sides are happy with.
A deal that will end with something both sides want - the sale of your business.
Thanks for reading, we really hope you found this article useful! We’re always looking for feedback, so if you have any to share, we’d be happy to hear your thoughts over a phone call or read them over an email. And, if you’d like to read more from us, you can visit our Hornblower Blog.
We understand that every business and every business sale is different, so if you need some friendly advice or help with your business sale, please give us a call or get in contact by clicking below and let us know. We’d be happy to help.