Question: I'm currently in negotiations to buy an existing business. What are some negotiating techniques I can use to make sure I get the best deal?
Question by: Sean
Knowledge Is Power
"The person with the most information usually does better in negotiations. Find out what is most important to them and their needs and wants. Leverage this information to gain the upper hand in the negotiations. How do you find out this information? Research and ask questions!"
Shop the Deal
"Always make sure that you have other opportunities on the table during any negotiation. With multiple opportunities, you will be putting yourself in a much better position during a negotiation. Multiple opportunities will allow you the flexibility to walk away from a deal, in addition to pitting the opportunities against each other to get the best deal possible."
Be Ready to Walk Away
"Start with a target price. Make sure your first offer is lower than the target. If you get stuck negotiating on price, remember everything is negotiable. Always establish a walkaway point. If they're not budging on price, tell them you can't do it. If they desperately want to sell their business, walking away from the deal is one of the most powerful things you can do."
What's Important to the Seller?
"When I purchased my first business, I realized that the seller's top goal was to make sure that the business was going to be run by a capable buyer -- not maximizing purchase price. We saved a bunch of money by realizing that he wanted to be comfortable with us, rather than just be blown away by a big number."
Start With the End in Mind
"Mental and tactical preparation is the most essential element of successful negotiations. Close a win-win business deal by starting with the end in mind. Always ask for more than what you expect to gain. Develop a collaborative and firm position. Have the courage to ask for the impossible. The results will surprise you."
Determine the Customer Lifetime Value
"Much of a company's success depends on customer equity, which can be broken down into two things: the dollar amount each customer spends with the company, and the cost of acquiring a new customer. There is a formula for identifying these costs, and it is absolutely priceless in determining a company's value. Search the specifics of this formula and apply it to your analysis."
Focus on the Negative
"Ask questions and find out the weakness of the company. When you find out what that weakness is, keep asking questions and find a way to get upset or frustrated about that weakness, almost as if you feel it devalues the company. If you only focus on the negative, chances are the seller of the business will too, and you may get a better deal. Then turn it."
Use Objective, Third-Party Criteria
"Use objective, third-party criteria to make sure that the terms of the agreement are fair to both parties. For example, instead of just offering X amount, show what independent sources you looked at when determining the fair market value of the business. Also, think outside the box and proactively look for opportunities to create added value and additional mutual gain in the agreement."
True Middle Ground
"Most people think of "best deal" as lowest price. I don’t necessarily think this is the case. When looking for the "best deal," I would often think of the best mutual win for both parties. Last year, I have made five acquisitions, and I am confident that I could give "acquisition references" for anyone new who I am talking with."
Know Thy Value and Costs
"Negotiations are not about perfect technique, but rather more about finding mutually beneficial solutions. Although both sides are self-serving, no one can argue with costs. If a certain number is too low for you, stand your ground. Maintain your value by emphasizing that, and how anything below your final number is impossible with your costs. Even the most stubborn negotiator understands that."
Do Your Research
"Make sure you get all tax returns and profit and loss statements since their inception, as tax returns don't lie. These statements give you an idea if the company was mismanaged. Because you're an entrepreneur and instinct will guide the ultimate decision as to whether or not to buy, at least the tax returns will help you negotiate a better price!."
The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. The YEC recently published #FixYoungAmerica: How to Rebuild Our Economy and Put Young Americans Back to Work (for Good), a book of 30+ proven solutions to help end youth unemployment.