Times When It's Your Broker Who Should Handle Negotiations

While much of the negotiating for purchase of a small California business is conducted at "arms length," meaning that the principal is not present when his or her offer or counteroffer is presented to the other party, there are times when buyer and seller find themselves at the same table, where they attempt to come to an agreement on a deal.

That was the case when Emilio was trying to persuade the family who wanted to purchase his sandwich shop to accept his price and terms. There had been a number of proposals and counter-proposals without satisfactory resolution, and the brokers felt a face-to-face meeting should be the next step in a "last chance" effort to achieve agreement.

Emilio had a fiery personality, becoming emotional when thinking and talking about how much money he’d receive for his business. His angry words might have discouraged productive discussion in this tense situation, ruining chances for an agreement. But Emilio, for once, had the good sense to remain quiet as the broker spoke on his behalf, and established positive communication with the buyers, concluding with a satisfactory deal.

An objective party is able to remain calm and logical, undistracted by inconsequential, emotion-packed issues, when involved in the battle concerning the price and terms for a business purchase. And that is one of the reasons for a principal in a small business transaction to let his/her broker handle negotiations.

EXPERIENCE AND STRATEGIES

Another reason to suppress the urge to communicate directly with the other party--to ask the broker to step in, is simply because professional intermediaries have experience in negotiating transactions. Many have developed various techniques for reaching agreements that satisfy all parties.

Lauren, for example, kept insisting she needed a specific price for her florist business, until her broker pointed out that if terms were set correctly, Lauren could accept a lower price and still receive the net proceeds she wanted. And Fred was able to get the extended payoff schedule he wanted in the purchase of a machine shop, when the broker recommended that he lease some of the equipment from the seller, rather than buy it outright.

And there are a number of strategies business brokers employ to aid in the satisfactory completion of negotiations, such as the "trial balloon" and 'I'll get back to you.'

A conflict in discussions can sometimes be resolved with a fresh idea: "What if the buyer agrees to purchase all the inventory, but pays for some of it with a promissory note rather than cash?" "Suppose the seller gets the terms and interest rate he wants, but is willing to wait till after the holiday season before you start payments."

These are examples of suggestions offered by brokers to open discussion on matters in conflict, without committing any of the parties to the proposal. If buyer or seller thinks the idea is a bad one, there is no increase in hostilities because the blame goes to the broker, and the principals can continue to try for an agreeable compromise.

A variation is the handling of discussion about a recommendation for solving a negotiating problem. When the broker tells one of the principals “I’ll discuss your proposal with the other party and get back to you on it,” he, or she is making sure there is some time for people to consider what is being discussed; making sure that no answers or actions are expected immediately, without benefit of some careful thought beforehand.

IMPORTANCE OF ESTABLISHING GOOD RELATIONS

In these examples, the principals to a transaction must, of course, make the final decision as to whether to enter into a contract for sale of a business, and if so, they must be in agreement on all the terms. It is never up to the broker to bind either party to a business deal. But the broker’s skill and experience are very useful in managing the process--sometimes a contentious one--of negotiating the details of a business purchase.

And if broker involvement has successfully minimized direct conflict between the parties, it means they have a better chance of working together harmoniously in completing the escrow and managing their contractual relationship following transfer of the business.

Posted on May 8, 2010  |   Email This Blog Post   |   Print This Blog Post   |  All Contributions From Peter Siegel, MBA