However, this may well be the only time you are involved in negotiating to buy a business, so often there is little opportunity to practise your bargaining skills and buy the business at the right price for you.
To help you in your dealings, here we have collated 14 tips from expert negotiators.
Buying an existing business checklist
1. How much to offer for a business? This hopefully goes without saying, but don’t 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.
Watch the below video on how to value your business
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?’
Further reading on negotiating
- Negotiating on price as a small business owner
- A three-step guide to buying a business Part 1: Why are you buying?
- A three-step guide to buying a business Part 2: The key steps involved
- A three-step guide to buying a business: Completing the purchase
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.
“Never be offensive and over-critical; it draws a defensive response”
8. Keep your reactions very low-key; never indicate whether the news is good or bad. Keep calm. Also, it’s worth remembering the seven magic words, according to Dr Richard Kaye, ‘What I might be willing to consider is…’ – a handy phrase to use in negotiation.
9. 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.
10. If you are probing for solutions which will allow you and the seller to agree, always begin your possible concessions with ‘If’.
“Planning your arguments and rehearsing them before the negotiation will give you confidence in the strength of your bargaining power”
11. Try role-playing before the negotiation occurs with a colleague or partner acting as an objectionable seller. And remember, 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.
12. 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.
13. Keep in mind whether the goodwill of the previous owner is needed after the change of ownership.
14. It is often useful to link part of the price to future performance. This reduces the risk of failure against forecast.