As a business professional, it’s very likely that you’ve been involved in negotiations before. You’ve likely negotiated the lease of your office space, the purchase of equipment and/or a sales contract. In your personal life, you’ve also probably been involved in negotiations for common purchases such as a home and car.
In all of these instances, there are common negotiation tactics that you can use to gain an advantage — something or somethings that can give you an edge and result in you paying a more favorable price for whatever it is you’re buying.
When it comes to buying a business, some of these basic negotiation skills can be adapted to help you get the best deal possible. But buying an existing business will most likely prove to be one of the most in-depth purchases you have made so far in your life, making it all the more important that you study up and come to the negotiation table prepared.
Here are 4 tips for how you can better negotiate when you’re buying a business.
1. Understand the Market
It’s possible that the business you are trying to buy is in an industry with which you are very familiar. It’s also possible that it could be in an entirely new and/or foreign industry. Either way, making sure you fully understand the current market conditions, the historical market performance and the likely future outlook for the market are all essential things when you’re entering negotiations.
While this may not sound like a direct negotiation tactic, being armed with loads of information is always a good idea. As the saying goes, “knowledge is power.” The more knowledge you have about the industry, the more powerful your position will be in negotiations, as you’ll have the ability to counter any points the seller makes.
2. Find the Weak Spots in the Sale
No business is perfect, and the one you are about to buy — no matter how successful it currently is and how successful you can make it — certainly has its flaws.
Maybe sales for the recent quarter were down compared to the market. Maybe the overall economy is slumping. Maybe the business has a large balance sheet of debts owed. Whatever it that weak spot is, know that there will be one.
A good tactic is to figure out what this weakness is so that you can exploit it during negotiations. Pointing out the weakness during negotiations could result in you purchasing the business for less than the asking price, for example.
3. Make a Solid and Favorable Offer
As with any large purchase, it’s a good idea to make an offer for what you’d like to pay for it. You don’t have simply accept the asking price as is. Make a solid offer that you think would be reasonable for the seller, and then pitch that offer to them as if you’re selling a product.
One way to make your offer even more solid is to provide proof that you can afford that price. In this realm, it would be akin to a pre-approval letter from a mortgage company for a home you’re trying to buy.
Having a solid offer and backing it up with proof of funds is often a strong way to convince a seller that they should accept what you put on the table.
4.Know Your Competition
The final basic negotiation tactic when you’re trying to sell a business is to know your competition. Are there are bidders on the business? Others who have expressed interest? Other options for the current owner other than selling? Or are you the only player in the game?
You never want to negotiate against yourself. So, if you know that you are the only person expressing interest in purchasing the business, you can use that to your advantage during negotiations.
Conversely, if you know the seller has three other potential buyers interested, then you’ll know you may need to up your offer price if you want to close the deal.
There are many different negotiation tactics you can employ when you’re trying to purchase a business. By starting with these four, you will put yourself in the
Talk to a Sunbelt South Florida broker today! Sunbelt Business Brokers of West Palm Beach provides dedicated business brokerage services for all of your selling needs. Whether you are an established business owner nearing retirement and looking to sell, or an ambitious entrepreneur seeking your next investment opportunity, there is no reason to look beyond Sunbelt Business Brokers. Visit us at 800 Village Square Crossing
Suite 216 Palm Beach Gardens, FL 33410 or contact us at (561) 832-9222.