Selling Your Business: The Negotiation Process

By Jeff Lever

September 2006

Offers are coming in to purchase your business.  The range of offers coming in vary from borderline insulting to above asking price.  Most sellers don't realize that when you place an asking price on the market, the negotiation process has already begun! Sometimes prospective buyers will present an offer and say, "Here's my best offer, take it or leave it," (the competitive mentality).  Others come to the table with, "Let's make a deal," (the cooperative mentality).  Both scenarios deal with the different types of situations from buyers that the avid seller will need to recognize to increase the strength of his or her negotiating position.  The negotiation phase and deal structuring is perhaps the most important aspect of the sales process, as improper structuring could result in lost capital or increased risk to the seller.

With such great stakes riding on the negotiation process, there are many situations that sellers will need to be aware of in the negotiation process.  There are three types of buyers --strategic, financial, or ulterior buyers.  There are also multiple or single potential buyers.  Sellers may be in a strong or weak negotiating position and it could be a buyer's market or a seller's market.  Even the physical and emotional state of the buyer can come into play.  The number of different situations that sellers can encounter during the negotiation process is limitless. 

Types of Buyers: Knowing the type of buyer you are dealing with will help you tremendously in the negotiating process.  There are three types of buyers you will encounter - strategic, financial, or ulterior buyers.  A strategic buyer is looking to use your business to enhance their current operation.  Strategic buyers are often willing to pay a higher price because your company offers to create synergy if combined with their current operations.   Financial buyers key in on fewer facets of your company.  If the financials don't meet their requirements, they will move on to the next opportunity unless the business is for sale at a great price.  The ulterior buyer is one buying for reasons beyond financial or strategic; perhaps the buyer used to own a teleservice company and would like to get back into the industry.  Knowing what type of buyer you are dealing with will help you tremendously when considering what type of counteroffer (if any) to make, deciphering whether they are a competitive negotiator or a collaborative negotiator, and many other "tells" involved in the buying process.

The Asking Price: The first thing to consider when initiating the negotiation process is whether or not to include a sales price in the company portfolio listing.  What some business owners may consider a business to be worth, the strategic buyer could consider it to be worth much more.  Sometimes it is better for the owner to simply let the offers come in.  Placing the burden for supporting an offer on the buyer's side can expose weak areas of your company you may have not realized prior to placing the company on the market.  In some cases, buyers have received much higher offers than expected by using this method.

Depending on the sales price you decide upon and the desirability of your business, you could have buyers fighting over the business within a few days.  Under certain circumstances it is good to have multiple buyers.  In other predicaments, it is better to have a single buyer you are negotiating with.  In past sales situations, pinning one buyer versus another in an auction type scenario has resulted in disaster, with both buyers walking on the business.  Rather than having one buyer go up against another, evaluate the buyers individually and negotiate with the buyer you and your professional team consider the best possibility for the highest purchase price.  Seller confidence is often a very potent negotiating tool.  The secondary buyer can be used as a back up if the negotiations with the first buyer don't work out. 

A key element that even most professional negotiators don't take into account is the psychology and physical state involved in the negotiation process.  How receptive a person is to negotiation on certain points may depend on the state that the person is in at the time negotiations take place!  Naturally, if a person has allowed many of the day to day issues associated with call centers to affect their state in a negative way, they could be more willing to negotiate a lower purchase price.  Most people do not realize that our openness to certain ideas or scenarios vary based upon the emotional state a person may be in at the time of negotiation. 

Key Elements: No matter what type of selling situation or state the buyer may be in, there are always key elements to the negotiation process to keep in mind:

• If possible, have someone represent you at the negotiating table. A merger or acquisition attorney or broker is ideal. 

• Do not become emotionally charged during the negotiation process.

• Be open to alternatives and leave room for negotiations. In other words, don't start out at your bottom line.

• When the buyer asks for some form of concession on your part, ask for some form of a concession on their part.

• Always work towards providing a positive atmosphere.

• Just as important as keeping your own limitations in mind, it is also important to keep the perceived needs and limits of your opponent in mind. 

In any of the situations, the negotiator with the most knowledge of the opponents position is often the most likely to come out ahead in the end.  Knowledge of the negotiation process and knowledge of what type of standing the buyer or seller has is vital.  Many professional negotiators will say the best circumstances to negotiate under are when it is a "win-win" situation.  A bitter recourse after the sales process has ended could be waiting for the buyer who demanded everything to go his way across the negotiation table.  The same could be said of a seller.  Stubborn sellers have cost themselves big deals only to later settle for less than what they could have had in a prior deal gone sour.  It is a good idea to plan to give up certain things in a deal in order to get the things in a deal that you must have.  Allowing both parties to walk away from the negotiation table feeling they have won is beneficial to the post sale process.