Tips on negotiating when buying a business
Apr 12 2011
Negotiation is key to securing the right deal
The negotiation is the key to future prosperity. This may well be the only time you are involved in negotiating to buy a business, so there is no opportunity to practise negotiating skills. But negotiation must be done if you are to buy the business at the right price for you. Follow these tips:
1. An obvious point, but do not agree to the price first quoted.
2. Open the negotiation at the lowest price you can. This price must be one which you can back up with credible reasons, so a good deal of planning is needed before negotiation begins. A shock opening bid can lower the seller's expectations and undermine resolve.
3. Look carefully at apparent bargains. If the seller accepts your first low bid, perhaps given the seller's better knowledge, your opening price was too high. Think again.
4. During the negotiation you can undermine the opposition's confidence by asking a lot of 'what if' questions. For example, 'What if the government changes?' 'What if your major customer goes bankrupt?'
5. Do not fall into the trap of making a concession for the sake of the goodwill of the negotiation. The opposition will most likely strengthen his or her resolve to hold out for the highest price possible.
6. Do not answer questions of how much you can afford to pay, at least until you wish to use it as a negotiating tactic at an appropriate time. Answering the question at the timing of the seller's choice may lead you into discussion of helping you foot the bill by loans or easy instalments. Later you can use what you can afford as a limit on price.
7. Sometimes, you will find that if you start out as a tough negotiator, the reaction from the other side is a soft response. A tough reply to a tough opener is more unusual.
8. Never be offensive and over-critical; it draws a defensive response.
9. Keep your reactions very low-key; never indicate whether the news is good or bad. Keep calm.
10. If the other side makes a concession, do not feel you must respond in kind. Stay tough. There is no law that if you make an agreement with the seller, the agreement should be mid-way between the two initial positions. On the contrary, the purpose of negotiation is to try and make sure the pendulum swings your way.
11. If you are probing for solutions which will allow you and the seller to agree, always begin your possible concessions with 'If'.
12. Planning your arguments and rehearsing them before the negotiation will give you confidence in the strength of your bargaining power.
13. Try role-playing before the negotiation occurs with a colleague or wife acting as an objectionable seller.
14. Whatever the treatment meted out by the seller, do not let it get to you and your confidence in your own bargaining position. Do not be affected by the other's apparent wealth, status, success or attitude.
15. The best way to counter any threat is to indicate that you are indifferent to its being carried out. Making threats yourself can be unproductive.
16. If it is possible to produce some outside authority who limits your bargaining position, do so. This could be your wife, your partner or the person lending you money.
17. Keep in mind whether the goodwill of the previous owner is needed after the change of ownership.
18. It is often useful to link part of the price to future performance. This reduces the risk of failure against forecast.
Comment by simon healey
Friday 17th September 2010Iam looking at buying a cafe, but when I have looked at the books the accounts show it to be making a loss due to tax reasons,is this normal practice or should I be wary?
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