Every offer you receive that is considered for your business comes with terms and conditions. This is the core of any offer you receive. This is called the business structure and is the most important part of your bid. Why not the price, you ask? If I offer you double the price you asked for the business, but want you to pay in 60 installments or only after 5 years, without anything in between, would you accept? Most people will say no, money up front or at least most of it. I can also pay you everything up front, but you have to work for me for free for 2 years to actually hand over the business. So price is important, but the structure of the business is equally important. Do not despair if you receive a specific written offer that does not meet your expectations. Most of the time, this is the buyer’s way of starting the final negotiations to close a deal. In the mandate you worked out with us, you specified what you are looking for. This is an offer with a deal structure to negotiate around.
1. The buyer is your friend
The golden rule to remember is that the buyer is your friend. He is not the enemy! He is the person who will pay you for your business. Treat your buyer as the most important customer you have ever had. You need to be in sales mode from the minute the offer comes in until the time you leave with money in the bank to pursue another dream and goal. Perception is everything, and the buyer will be convinced to pay more and change the deal structure if their perception changes. You will not get a better deal if you treat the buyer like an enemy. So switch into selling mode and convince the buyer to change his offer. In most cases, the price cannot be changed because the valuation models used determine the price, the financier has a certain perception, or the buyer simply does not have more. Remember, the value of a business is still ultimately what a willing buyer is willing to pay for it. So what can you change if you sell to the buyer and change their view? The structure of the business can be changed by your actions. Things like profit guarantees can be changed, repayment terms, trade restrictions, the amount of time you have to stay in the business, and various other factors that will affect you. In many cases, you will be expected to stay with the company for a while – do you want to do that with someone you had a heated argument with? So go into this phase of the business as if it’s the most important sale ever and the customer is a friend.
2. How to negotiate
Most business owners make the mistake of trying to negotiate around the offer they made in a face-to-face meeting. The golden rule is to let your broker do the hard stuff for you first. If you feel frustrated by the offer because it is too low, too complex, insulting, too demanding, or whatever is in it that affects your emotions, the broker is the person who serves as the catalyst. The buyer will have the same emotions because it is your life’s work and your baby, but never forget that it is their hard earned money. Remain the champion of your business and let your broker manage the bad news on both sides. Remember, if the buyer walks out happy and you are unhappy, he has taken advantage of you; if you walk out happy and he is unhappy, you have taken advantage of him. If you are both very happy, one of you got the short end of the stick but does not know it yet, and if both are somewhat unhappy with the outcome, it was a fair deal for both of you. Allow your broker time to objectively review the proposals made and their implications, and do not let a face-to-face meeting with the buyer prevent you from calmly considering the offer. Listen to your broker; he or she will hear the whole story from the other party’s point of view, as it is and without any embellishment. A buyer will easily say, “The seller is pissed, I am not doing that, I’d rather walk away!” The broker will convey an edited version – “The buyer feels this is a non-negotiable.” The broker is a catalyst, his job is to broker a deal, to steer the parties away from the cliff, do not ignore the broker, use him.
3. Evaluation of the risk
The offer you receive must be evaluated for its risks, so do not get carried away from the moment you receive it. With the help of your broker, prepare a list of these risks. Two out of three offers actually fail to close. In many cases, it is factors beyond your control that are responsible for one of the failed offers. Statistically, the other failure is due to some behavior on the part of the salesperson. Among the risks beyond your control is the buyer’s lack of financing. If he fails to obtain financing, it is due to something beyond your control. On the other hand, if your audited financials do not support a loan application, that is within your control. Your audited financial statements are from the company that is supposed to repay the loan. You can easily evaluate the offer and determine much of the risk. A smart salesperson will ask for changes to the offer to ensure the deal closes, not to improve their position. So make a list of the risks and compare the offer to that list to understand it. The other set of risks that relates directly to you and the closing of your transaction is your behavior. If you give the wrong impression during due diligence, defending your business and the numbers versus selling your business and the numbers will end badly. It cannot be stressed enough that you should negotiate for what is important to you and not argue over every little point, because you could derail a deal if you get upset over things that are not really important to you in achieving your goal. Your goal is to sell your business at a fair market price and an acceptable business structure. Do not worry about the other things, live with them.
4. The view of the other parties
Most important of all – remember the other party’s perspective! Every business, seller, and buyer is unique. No two deals look the same, have the same circumstances, terms and conditions. In the end, you only have to sell your business to one buyer. No matter how personal and tough the negotiations, the buyer is always your customer and a friend. If you forget the buyer’s point of view, you can destroy your business with something that is very stupid from your point of view, but crucial for the buyer. A good broker will always try to understand both points of view, so play your cards close to your chest so they can make sure the buyer understands your point of view on important issues. In many cases, negotiating a final offer is not done in a single pass, but in several.