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How Do I Navigate Through The Negotiation Process When Buying A Business?

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Comments & Replies: 7     Views: 2989     Posted By: Peter Siegel MBA  

Negotiating the terms of a business deal is a delicate process, where one wrong move can cost you the business that you wanted to purchase. Peter Siegel, MBA (BizBen ProBuy Program) discusses the ins and outs of negotiations, and how to work well with the seller to get a deal done.

Topics: Buying A Business     Tags: buying a business, deal structures



As someone who is genuinely interested in purchasing a business, you will start by learning the basics of that business, as well as all relevant information needed to enter negotiations with the owner. As you enter negotiations, you will have a pretty good understanding of what the business is about, what you like about it, and what questions you have for the seller to answer. While you may be prepared with that general information, you may still have no experience negotiating the sale of a business, no idea how that process works, and no idea how to get a deal done.

As a buyer, you should view negotiations and working with the seller as an audition. For example, if you are a supplier for a business, how you represent yourself, how you conduct business, and what your attitude is like, can all be the difference between losing your account or moving your relationship with the customer forward. Or, if you are an intern with a Fortune 500 company, every move you make will be evaluated, so you will have to prove that you are worthy of the opportunity and demonstrate that you are capable of taking the next step in the process. When you are in the process of buying a business, the owner is trying to sell the business to you, but you are trying to sell yourself to the owner.

Before getting down to the difficult and tense areas of negotiations (i.e. selling price, financing, etc.), it is wise to open discussions by focusing on some of the smaller elements of the deal. Some of these topics may include working out a timeline for the deal to get done, expectations for an initial deposit, and discussing the conditions of the lease agreement. By working together on these smaller, but still important issues, you will establish common ground and learn how to work together to figure out the most important remaining terms of your deal.

As you dive deeper into negotiations, your attitude will become paramount to your success. Your attitude when faced with adversity, a difference in opinion, and difficult decisions, will reveal a lot about your character and can make or break your business deal. One of the most complicated pieces of the business transaction puzzle is the selling price. Business owners love to think that their business is worth the world, and business buyers with any level of experience are hesitant to overpay for their new business adventure.

If you aren't prepared to pay top dollar, then it will help you to come prepared with evidence to support your reasoning for wanting to pay less. To be taken seriously by the seller, you will want to come prepared with knowledge of the industry, factors that go into valuing businesses in the industry, and take an educated and honest approach to negotiating numbers. You need to be able to maintain a calm demeanor, demonstrate that you understand the value of the business, and show the seller that you are genuinely interested in getting a deal done that works for both parties, to help your overall case.

It is crucial to come prepared to negotiations, establish common ground with the seller, show that you have good intentions and that you are an honest person, and find ways to give the seller small wins within the deal, to keep them happy. Constructive negotiations are truly a work of art, and require the buyer to really play to the relationship that they are building with the seller. The sooner you understand the seller and know what their expectations are, the sooner you will be able to construct a successful deal that works for both parties.

Replies To This Comment
If a buyer is negotiating with a seller, it's best to use the broker to communicate, because a buyer asking for concessions face-to-face is a way in which business can become personal. I advise buyers to keep everything on paper, and then I'll meet with the seller to either reject the offer, accept it, or counter it. For some people, a response of "yes" that is too quick can lead the buyer to believe that something is wrong, because the seller showed no sign of resistance, so when negotiating, don't move too quick, but not too slow or the deal with fall apart.


Contributor: Business Broker: LA County Area

I'd like to re-emphasize something you've already stated pretty well, Peter. Have super-solid knowledge of your numbers when it's time to negotiate. You're always in a stronger position when you're seeking certain outcomes by basing your arguments on numbers rather than emotion or opinion. That means having you or your broker know the sales comps involved in the Market Approach to value. Or having a true understanding of equipment valuations. Or understanding the landlord's goals and motivations. There are many facts and figures needed to have a firm grasp of a deal.


If a buyer is negotiating with a seller, it's best to use the broker to communicate, because a buyer asking for concessions face-to-face is a way in which business can become personal. I advise buyers to keep everything on paper, and then I'll meet with the seller to either reject the offer, accept it, or counter it. For some people, a response of "yes" that is too quick can lead the buyer to believe that something is wrong, because the seller showed no sign of resistance, so when negotiating, don't move too quick, but not too slow or the deal with fall apart. One business day is a good time frame for a response.


Information is King. You need to know the business, it's operating model, its potential going forward, the lease, the condition of any fixtures and equipment (if any) and a good analysis of the Income and Expense information, followed by Due Diligence. You must clearly know what you are buying. You need to be able to demonstrate and negotiate based on that sense of value. Don't get trapped by Seller "need this" or "Others are clambering to get" this tactic. There are other businesses and mistakes can be costly. So be sure to know the value, Seek experts and information as you can find it and then be able to convey that value to the Seller and negotiate with an exchange of each parties sense of value. You should cot look for the best deal price without knowing what the true value is. Knowledge is King!


While Peter's advice about negotiating the terms of a business sale/purchase is valid and highly beneficial to understand, it is critical for the business buyer and business seller to recognize that this is something they will most likely do only once, and perhaps a couple or three times in a life-time. Having a professional experienced intermediary involved is very often the key to a successful negotiation that is structured and implemented in an orderly, organized, and finely-tuned manner.

The intermediary(ies) provide an objective and rational atmosphere in the midst of something that can become subjective and emotional. They supply the professional "distance." Intermediaries include business brokers, and CPAs, and business-focused attorneys, who have expertise in such matters obtained from years of hands-on experience.

Just last fall, I was working on a $4,000,000 purchase of an intricate service business, representing a buyer and working with a seller's broker. The other broker and I tried over and over to have the parties let us negotiate the particulars of the deal on their behalf. The other broker and I have years of experience in orchestrating complex deal structures. We know how to separate fact from fiction, emotion from reason, essentials from non-essentials. The two parties -- buyer and seller, however, insisted upon working directly with each other in a painstaking and excruciating process of hammering out with each other every minor aspect of the deal, without any experience in doing so before. They were both "too smart for their own good." Eventually after eight months, and close to $100,000 being spent by the parties on their respective accountants and attorneys--who also weren't allowed to negotiate with each other, they were 98% in agreement ... and, the whole deal fell apart. Why? Because they insisted on keeping the experts out of the game. The analogy is simple -- the players and the coaches were sitting on the benches, and the team owners were trying to score goals on the field. -- Absurd!


First find thing to do is to identify what everyone's goals and expectations are and help them get there as fast and easy as possible. Without knowing what the true goals are of each party you can waste a tremendous amount of time and energy and most likely the deal.


  Helpful Resources To Assist In Selling And Buying California Businesses

Brad Steinberg, Broker - Laundromat Specialists

Laundry specialists - founded in 1968 by three laundry professionals, PWS is a family-owned corporation. Through the years it has grown to become the largest vended laundry equipment distributor in the United States. Call Brad Steinberg at 323-721-8832 to sell or buy a coin or card laundromat.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.


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