If you've run a business for a number of years, you'll have had plenty of negotiation practice with customers and suppliers.
However this may be the first time that you've sold a business.
If so, this is probably a major step for you. How will you know that all the bases have been covered before, during and after the negotiations?
Think of this how-to article, and the associated checklist on ExitAdviser, as a reminder of some of the key things to consider as you work through the negotiation process.
It's assumed here that you've already followed the recommended ExitAdviser steps through to this point.
For example, you've a good idea of a realistic price for your business based on its trading performance, assets, potential, the market conditions and overall demand versus supply for businesses of your type.
It's further assumed that you've now reached the face-to-face meeting stage with the buyer.
So, here goes with ExitAdviser’s Top Ten negotiating tips:
- Be prepared and structured, take your time
- Think like a top sportsperson and visualize the prize
- Check for real rapport and trust
- Two ears, one mouth, ask good questions, then listen
- Avoid giving too much away, too early
- Answer questions realistically, concisely
- Summarize to check for understanding
- Be confident and assertive
- Clearly present the right information
- Know your bottom line, and when to "walk away"
Taking each of these ten in turn:
1. Be prepared and structured, take your time
This first point is essential to achieving your goals. Failure to prepare, is to prepare to fail.
Find out in advance how many people are coming to the meeting and the reason for each person being there. This may impact on the information you give and the way it's presented.
Take time to check out the potential buyer's background and any key facts that they may have volunteered in previous telephone conversations. Are they who they say they are? Can you infer anything about their preferences, intentions or weaknesses?
Social media channels like Facebook, Twitter or Linked-in are obvious starting points, alongside an Internet search. Naturally you'll want to use information you uncover to your advantage during the negotiations. If they're a serious buyer you can be sure that they'll have done their intelligence gathering on you!
It’s particularly important to expose any covert attempt by a competitor to gather intelligence on your business.
Think about the best place to meet.
Create an environment conducive to giving the right first impression. As we all know, these impressions are often difficult to change once set. This may not be your place of work in the first instance particularly if employees are not a party to your secret.
How can you make sure that you won't get interrupted or distracted?
A good way to introduce some structure to the session is to suggest and agree an agenda with the potential buyer in advance of the meeting, even if it only has a few points on it. This will demonstrate that you're professional and organised in your approach.
You may also wish to use a simple model like AIDA to enhance your understanding of the communication process.
For example, the potential buyer will have some awareness (A) of your business from previous telephone conversations or emails. You'll want to check this awareness at the start of the meeting. The meeting itself will attempt, using a mixture of information and materials presented, to create or reinforce buyer interest (I), and the mutual desire (D) to proceed to the next stage.
You may take this as a series of gates to pass through, where action (A) is finally agreed and taken by both parties to realise a "win-win" outcome. When pressed at any stage in the process the prospective buyer may say, "No", which is also fine, because this means that neither party will waste any further time.
2. Think like a top sportsperson and visualize the prize
There are a number of areas where parallels can be drawn between sport and business.
Visualization techniques attempt to "programme" you for a successful outcome. So whether it’s The Super Bowl or a top soccer team, players often imagine themselves beforehand wearing the ring or lifting the trophy at the end. What it looks like, sounds like, feels like!
You can do the same.
Take time out to imagine that you've achieved the goal you want from the meeting with the buyer. What it looks like, sounds like, feels like. By doing this you set yourself up to succeed.
It’s best to start with this positivity. But, if you are the cautious type, you may wish to also think about the things that could go wrong.
What are the most uncomfortable questions that a buyer might ask you? This may remind you of job interviews you've had in the past!.
In this way you can take steps to handle the situation should it arise. For example, a good prepared answer to that most awkward of questions.
3. Check for real rapport and trust
This is a very involved subject on which many books have been written. ExitAdviser has extracted a few of the main points.
A key point is that people typically make judgements on the basis of rational thoughts, but they actually buy using their emotions. Other things being equal, people buy from people that they like, that they can relate to, and that they can trust. Often it’s people just like them.
Bear in mind also that it's fairly common for the owner selling the business to remain within it for an agreed period of time, before receiving the final sale payment.
There are good personality frameworks such as the Enneagram that offer clues to a buyer’s personality type. In the case of the Enneagram there are 9 core types. However this requires practice.
One technique is to remain aware and focused at all times on what the person says, the way they say it, the words that they use, and the body language on display. Maintaining good eye contact is very important in building trust.
What are they really saying? Your natural radar may already operate well in this area. For example, you will often know when someone says one thing, but their body language says quite another. Their use of language can be a signal as to the primary way they take in information.
If they say, "I hear your point..." and regularly drop in words implying "sound", they probably access information primarily through their ears. If they regularly say words such as, "I see your point...", this suggests visual learners.
Finally, people who frequently use words like "feel", or similar, are typically kinaesthetic learners. They prefer to experience the information they receive in a physical way.
And, with communication being a 2-way process, this means that you also need to take care. Words such as "could", "should", "must" and "ought to" are best avoided. They imply a telling approach that, at its worst, can make the recipient feel, psychologically, that they're being lectured to, even pressurised. This is bad for rapport and empathy building.
The converse of this is "mirroring", a natural mimicking process for human beings in empathy with one another. Here body movements and certain words are copied. This can be likened to a couple dancing in rhythm! Be careful not to do this in a deliberate, unnatural way as it could backfire badly, and all that important trust will be lost.
Why not make a point of heightening your awareness of rapport building? So that you can start to build your own experience and technique.
4. Two ears, one mouth, ask good questions, then listen
You will find out so much more this way.
What’s the point of filling the time with your words and information you already know?
Ask good open questions to reveal what you really want to know. As opposed to questions with a "yes", or "no" answer. For example, "What stage are you at with your search?"
Be careful to ask one question at a time. So, your next question might be, "What types of businesses are you currently considering?"
This may require patience because you won’t always breach their defences with the first few questions. Sometimes naive questions can work well, even though you already know the answer.
The "What?", "Where?", "Who?", "When?", "Which?", "How?" question prompts are good. Try to avoid questions beginning with "Why?", because this can imply that you're pressurising them to justify a decision, or their position on an issue.
5. Avoid giving too much away, too early
Typically, you provide more information to the buyer, in both verbal and physical form, as you move forward through the buying process.
It’s fine, particularly in the early stages, to reveal only the minimum necessary. For example, if negotiations are progressing positively, then you can make the revelation of further information conditional on the buyer signing a non-disclosure agreement.
Decide in advance what you're prepared to divulge at each stage of the process, and what information you will allow them to take away after the meeting.
Use periods of silence to your advantage.
Be comfortable with silence to the point where it is them, and not you, that fills the space. The effect of this is that you'll learn more from them, and reveal less yourself. They may even slip-up. Better them, than you.
A further point is that certain personality types are more internally referenced, and therefore slower to answer than others when processing information. They'll not appreciate your interruption when they're thinking through their answer, and this can negatively affect their perception of you.
6. Answer questions realistically, concisely
It’s always good to answer a specific question in an upfront way. Otherwise you may appear unconvincing, unstructured, and in the worst case evasive. "Maybe he's hiding something from me", could be their conclusion.
In other words, avoid acting like a typical politician!
The wider issue is striking a balance between making the proposition, or "story", about you business attractive, whilst at the same time not misleading the prospective buyer, or telling untruths. ExitAdviser has covered this process earlier.
There’s a practical and a legal reason for this thinking.
Practically speaking, there's the, "Too good to be true" consideration if everything presented appears to be embellished and glossy. On the other hand, revealing the "warts and all" is not sensible because it can quickly turn the buyer off.
Hence the need for balance. Bear in mind that you'll be signing agreements later that may hold you to legal account on the state of your knowledge at the time.
In general, it’s far better to answer the specific question as succinctly as possible, and then keep quiet. Wait to see whether they request any further details. Avoid volunteering too much information.
7. Summarize to check for understanding
A communication is only effective when the message is transmitted by one party and received by the other. With the same perception and understanding.
The problem is, how do you know this happened, accurately? You're bound to remember instances in the past when you've left a meeting feeling that you presented your message well, and reached agreement. Then later you find that the other person received only a part of the message. In other words their understanding was different to yours. It can be quite a shock.
The scope for misunderstanding in everyday communication is enormous. Unless you take steps to mitigate against it.
An obvious way is to take notes, put what you think was agreed in an email or letter, and then let the other person agree, or add amendments. This should happen even if there are other witnesses in the room. Legal representation naturally helps, but probably not early in the negotiation process.
A really useful tactic is to periodically summarize in words, paraphrase if you like, your understanding of what the other person has just said, or agreed. The advantage here is that you clarify any misunderstandings there and then, so any follow-up written communication should be a mere formality.
Think of this as building a house of cards. You need to finish one level before you can move on to the next. Avoid ending the meeting until you are confident that mutual understanding has been reached, and the next step agreed.
Why not practice this today as you go about your business?
8. Be confident and assertive
Typically we respect people more if they appear confident and assertive. Even if, deep down, they're not!.
One sign of this confidence is when a person looks you straight in the eye, and maintains this eye contact.
First impressions count.
This includes what you wear, how you look, and your personal grooming habits. Dress appropriately for the occasion. A good rule of thumb is to be seen to have made an effort that respects the importance of the meeting to you, and to the prospective buyer.
Dress to impress? Smart business-like attire is the safest option, but there may be particular dress codes that apply to your business sector.
Concentrate on speaking clearly, perhaps also slowing your delivery speed a little. This will make it more likely that your message will be received and understood. You'll also appear more naturally confident.
The biggest confidence booster, that also enables assertiveness when required, is when you know your stuff inside out. Practice makes perfect.
If you've followed ExitAdviser's steps so far, and are well prepared, why would you not be confident of a good outcome?
9. Clearly present the right information
It helps to know in advance what the prospective buyer wants to learn at the meeting.
This means preparing properly for an efficient and effective session, and having an agenda.
There is likely to be information that you're not prepared to divulge at this stage. It's best to make this clear to the buyer before the meeting to set their expectations appropriately. This may cause them to pull out of the meeting, in other words, a "No". This is a good outcome because it helps you to move on to the next prospect, and save your valuable time.
In an ideal world, you would know something in advance about the prospect’s learning style, as in Tip 3 above. In the absence of clues, it's best to cover all bases by providing information to suit all learning styles.
Choose words carefully to resonate with an auditory learner. You may refine this during the meeting if you sense that this is their predominant learning style. Think about your key messages in advance and in order of priority. Keep it short, keep it simple, keep it punchy.
The same with visual material. Most people fall into this category so they like to see clear, uncluttered graphs and pictures that tell a thousand words.
Bullet point style for written words is great too. So, why not produce an impactful Powerpoint presentation? If done well, and concisely, it will focus their attention on key messages. Not too many slides. As few words on each as possible.
If you address potential buyer’s main points of interest, identified in advance, you're very likely to impress them on the day.
Finally, the kinaesthetic person wishes to touch, feel, interact with or experience the product or service for themselves.
This may, or may not, be practical but there's always scope for creativity here. It could simply be a tour of your workspace, or the chance to feel and touch your promotional material, or to access your website themselves from a desktop computer.
10. Know your bottom line, and when to "walk away"
So, finally, here’s the real bottom line.
You've used ExitAdviser to help establish a realistic price for your business. You now want to achieve it, or get as close as possible to the target figure.
This can be a protracted process of negotiation over several meetings, phone calls and email trails. Then there is Due Diligence, and legally binding documents to sign.
If you've prepared well. If your financials are in order, you've a strong proposition, and your market sector is reasonably attractive, with demand and supply in healthy balance, then you should be confident of achieving your target price. Or getting close to it.
Should you consider discounting this price?
This clearly depends on how much interest is shown from potential buyers. And how quickly you need to sell. Patience is usually a virtue where price is concerned. If a buyer senses any sign of desperation you'll be far less likely to meet your target price.
There are also a number of technical issues, beyond the scope of this how-to article. For example, is part of the payment dependent upon you staying within the business for a period of time? Perhaps you may need to provide some of the payment as a loan to the buyer.
Follow the steps and the resources in ExitAdviser, negotiate hard, and don’t give much away without getting something in return.
If you feel that the offer does not match your needs, then signal strongly that you're prepared to "walk away". And do so if necessary, moving on to the next prospect.