Pricing & Counter-Offer Strategies
Business negotiations in movies are almost always a spectacle. They’re full of pithy offers and counter-offers, ultimatums, heated moments, and risky tactics. You’ll almost always see one party walk away from the table, only for the other party to yell “Wait!” before accepting their last-minute offer. It all ends with big smiles and handshakes.
Actual negotiations for purchasing a business are almost nothing like the movies - except for the big smiles and handshakes. That’s a good thing. Business negotiations, pricing, and counter-offers are a slow, steady process.
Let’s go over some of the strategies that you won’t see in the movies:
Leave the negotiations to your business broker
When selling your business, you have to put everything on the table - the good and the bad. A buyer may point out flaws in your business in order to negotiate for a lower purchasing price. They’re well within their right to do so, just as you're within your right to point out the strengths of your business.
The problem with negotiating face-to-face is that even innocuous comments about your revenue being down in the last quarter can lead to inflamed passions. Business brokers are at arm’s length from your business. You need someone with a level of detachment during negotiations to get the best deal, which is why all your negotiations should be left to a business broker.
Need a business broker to negotiate on your behalf? Jason Brice offers business broker services in Vancouver, including negotiation services.
Lower offers can lead to smoother transactions
Having to wait for lenders to approve financing can be a real pain - especially when those deals fall through. Cash is king in the world of business deals, and that means that a party with the cash to pay for your business outright will be able to make a lower offer.
It’s a bit strange - the party who can most afford to purchase your business is also in the position to offer the least. That’s the reality, though, so before entering negotiations, you have to decide whether you’re willing to sacrifice some profit to reduce the chance of headaches down the line.
Respect the other party
Business sales are unlike any other kind of sales - you and the purchaser are almost certainly going to be working together for months, if not years, to come. That’s why respect is absolutely paramount when negotiating a deal. It doesn’t mean you have to roll over - but it does mean you should be on friendly terms. Don’t sell your business to someone you don’t respect or to someone who doesn’t respect you. People often think selling a business is like selling a house …. Whereas picturing how different negotiations would be if you bought a house and had to keep the seller as your roommate for three months while you learned where everything was in the house. Sometimes trying to grind out that extra 0.1% is not worth any loss of respect to the other party. THis applies to both parties, and a good broker will ensure things stay peaceful.
Penny wise, pound foolish
We touched on this briefly when we talked about cash offers, and here we are again: Negotiating for more money isn’t always the right move. You can sink an otherwise perfect deal by getting too focused on something inconsequential like whether or not your brand name is being undervalued by a few dollars. Personal attachments to your business shouldn’t lead to you nickel and diming your would-be buyer. A good broker will set a sale target, and then just work to hit that target as best you can.
The highest price isn’t always right
Negotiations should be aimed at reaching the broker’s valuation number and not at the highest price possible. Why?
The truth is that many buyers overestimate the financing they can secure. Your business broker will have calculated the amount that banks and other lenders are likely to be willing to loan in their final valuation number. By securing an agreement equal to the financing a buyer is likely to be able to secure, and not for the maximum amount possible, you reduce the risk of the deal falling apart in its final stages. Most brokers will tell you that they can get a Letter of Intent for almost any price they want …. But getting a deal funded and consummated is a whole other story.
Negotiations can be tricky, but we can help
These are just a few of the tactics and counterintuitive realities you need to keep in mind when negotiating the sale price of your business. If you want more information, we’re always here to help - call Jason Brice today!