Sellers and buyers of a business have competing interests. Buying a business at the lowest possible price with favorable terms is a challenge, and it requires the art of negotiation. The process isn’t for the faint of heart, but there are sure-fire ways to close the deal in your favor.
Here are four ways to use your bargaining power to get a screaming deal on your business purchase.
- Know your seller
Before buying a business, you should always perform due diligence. At this point, you’ve done the research—put it to use! Use market research and economic factors to your advantage. If the seller is facing rising prices or a saturated market, make it known that you are taking on risk and uncertainty by purchasing the business. This gives you the upper hand in negotiating price. In addition, keep in mind that the person negotiating on the other side of the table has his or her own motivations. Get to know them, understand what is driving your negotiating counterpart, and you can increase your bargaining power. Take into account the market for buyers. There may be a small pool of buyers who would be interested and financially capable to close the deal. If you are one of them, you are in a position of power. Use it.
- Make strategic concessions
Concessions hurt, but not every sale is clean-cut. If concessions become necessary, make them strategic. Demonstrate what you’ve given up to your counterpart and force them to return the favor—on your terms. You can safeguard a concession by making it contingent on you receiving something you value. While you should never make a concession for the sole purpose of goodwill, you can use necessary concessions to demonstrate your willingness to buy and fairness. If the asking price includes something you don’t intend to use—client lists, equipment, employees—then making concessions can be a powerful tool to lower the selling price and save you time and hassle down the road. Cut the dead weight from the business in advance; don’t pay for it.
- Demonstrate your ability to pay
The seller is looking to maximize the price of their business and receive payment, oftentimes as soon as possible. The last thing they want is to enter into an agreement with a party that will require them to hire a collection agency. If you can pay for the business, especially in a lump sum payment up front, maximize your ability to pay as a selling point. If you can pay quicker than a competing buyer, sellers may be more willing to negotiate.
- Seek professional advisers
Buying a business will require legal counsel. From non-disclosure agreements to asset purchase agreements, the process of buying a business is complex, and regulatory burdens can be overwhelming. The team you hire to assist with the process, attorneys and financial professionals, can serve you in more ways than one. Using professional advice and evaluations help keep the negotiating process neutral and objective. It ensures that your emotions, and the seller’s, aren’t at the table. Your price will be based solely on the value of the business. Citing data gives you bargaining power.
You share a goal with the seller: closing the deal. With these four tips in mind, you’ll not only close the deal--you’ll get a bargain.
If you’re looking to get a screaming deal on buying a business, contact your Omaha Law Firm, Sioux Falls Law Firm, or Sioux City Law Firm today!