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Negotiating a Business for Sale in Canada

Negotiating a business is a skill that requires practice and a lot of research. We offer you a detailed guide to help you become the best closer when it comes to making effective and successful business negotiations. Follow these tips to yield the outcome you desire.

Negotiating a Business

Why is the Negotiation Stage Important?

Why is negotiation important

The process of negotiating the sale of your business can be daunting for both parties involved. Each side wants to ensure that the deal is closed, and the business is sold or bought with the least number of concessions. The more prepared the executive or owner is, the more likely it is for the negotiation to result in favorable terms.

Good negotiations make significant contributions to the success of the business as they assist in building strong relationships, long lasting partnerships, deliver quality solutions, and ensure that there are no conflicts and problems in the future.

Moreover, the process of bargaining requires giving and taking on each side. You, as the owner, should strive to create a constructive and courteous interaction, as it is a win-win for both parties involved. A good approach will include valuing your business beforehand and making concessions that do not mean much to you but are held in high regard by the other party. This way, you can foster goodwill, even if there are differences in the interests of the two parties.

Simply put, a negotiation is a way to ensure that each party is equally satisfied and ready to engage, avoiding any conflict in future business transactions.

Negotiating a Business as a Seller

Negotiating as a Seller

You have successfully found the perfect buyer to acquire your business after years of making deals with customers and vendors. This has given you your fair share of practice when it comes to negotiation. However, now that it is time for you to sell your own business, you might be feeling unprepared to pull off such an elaborate and important transaction.

While purchasers aim to acquire businesses by asking for a decrease in price and favorable buyer terms, owners of companies want to get paid for the fruits of their hard work. They hope to arrange for seller terms that are optimal and maximize the price in their proposal. However, despite the tension that exists between the two parties due to their opposing goals, sellers, and buyers both want to get the deal done.

Therefore, business owners should focus on the factors mentioned below to ensure that you are able to negotiate the right deal with success.

1. Gather Information by Doing Research

From the two companies engaging in developing a satisfying arrangement, the one with complete and accurate information can enjoy benefits over the other. Given that you are the seller, you might think that you have all the required information related to your business to execute a brilliant deal.

However, be thorough and make sure that you are familiar with all that there is to your business. Make sure to cover all your bases so that the buyer does not turn around and bring up a potential issue. One such example of this could be for you to think about the courts, lawsuits and debt that could derail the sale of your business.

2. Remember your Negotiation Strategies

Selling a business is not an everyday occurrence. It is something you do once in a blue moon. Therefore, even if you think you have mastered the art of negotiation, be sure to take some time to go over your chosen negotiation strategies and tactics. It is better to know your bottom line well ahead of a meeting with a client so that you can execute the deal to the best of your abilities.

3. Negotiate the Right Selling Price

People often believe that determining the selling price of their business is the easiest part in a negotiation. When discussing the acquisition with a potential customer, remember that the selling price of your hard work can be divided into multiple sections.

The first section is that of business assets. You need to figure out the value of your business's assets and whether it is based on an appraisal or the current market conditions. Be sure to also review whether your assets are at an expected liquidation value level. In addition, when setting the purchase price for land and buildings that your business owns, you need to have them appraised. Using comparable values is also recommended.

Remember, the greater the information you obtain from other sources regarding the assets, the easier it will be for you to make your case regarding the value of your business.

4. Figure Out Contingencies:

Contingencies are conditions that need to occur before you can successfully execute the sale of your business and deem it as complete. These may include the following.

  • A financial audit of the financial records of your business
  • Acceptable transfer of office or building lease
  • Receipt of money deposited by the customer
  • Acceptable bank financing for your client
  • Qualification by a lender of the buyer

Negotiating a Business as a Buyer

As a Buyer

If you are gifted in the art of bargaining, then the process of buying a business is sure to put your valuable skills to the test. The conversations may be difficult to have, but you need to understand the fundamentals. Dedicated contractors will help you get a discount and the price you desire. Continue reading to find out how you can negotiate your way into a successful acquisition.

1. Conduct Research:

Before you make an arrangement with the seller, you need to be familiar with the business, inside and out. The sale proposal that you are trying to establish may include lease agreements, employee contracts, and stock details. On the other hand, maybe you are just trying to acquire the intellectual property or the business idea.

Make sure to know exactly what it is that you are purchasing before you associate yourself with it. If you are bargaining for a preferred price, being aware of the market price is a bonus, as well as knowing what the seller is hoping to yield from the deal.

2. Pick Out the Right Location:

People often underestimate the importance of the right location when it comes to closing a deal. Finding a favorable location can increase your chances of success by helping you remove the opportunity of a potential power imbalance. Moreover, it will help you create a comfortable environment so that both parties can easily put forth their expectations. Try to search for a neutral ground, where having an open discussion is possible without any risk of disruption or interference.

3. Understand your Body Language:

How you conduct yourself in a negotiation can make or break the contract you are trying to establish. If you are confident, honest, and open, then you are allowing the seller to see that you are not hiding anything. These can also include things like smiling, nodding your head, maintaining friendly eye contact, punctuality, as well as being aware of your facial expressions.

4. Aim High:

While you want to be open when conveying your expectations from the business, you do not want to lay all your cards on the table. Make sure that the first offer you make is not your final one, which will give you room to negotiate back and forth. You also do not want to give out any favors and earn something in return instead. Try to discuss delivery, pricing, along with other terms. You do not always have to conduct yourself in a cutthroat manner to walk away with a deal that benefits you.

5. Be Patient:

Negotiations can be a long and tiring process but being patient is very important. Rushing a sale is not going to result in the best offer you want, put you can also risk exiting a merger prematurely. If things are moving a little slowly for you, reach out to the seller directly instead of their managing partner, business broker, or accountant. On the other hand, if the process development is too fast for you, make your concerns known to avoid conflict.

6. Be Honest and Confident:

Believe that anything is possible, and you can pull off major purchases and find your way through complex deals. Do not convince yourself to stay quiet; instead, stay dedicated and ask for what you want. If you do not quote your terms, the answer will always be no. But do not make unnecessary demands that may hinder the final merger. Conduct yourself in a civilized and respectful manner because you may need help from the current owner in the future.

In addition, part of being true to yourself is realizing that if there is no reasonable outcome to the deal you are trying to broker, you may have to walk away.

7. Be Thorough with Due Diligence

Due diligence grants you access to the business equipment and inventory, as well as contracts, intellectual property, and financials. You will know all the details of the business and be able to figure out the financial risk involved. This will help give you a stronger position when it comes down to negotiations.

Throughout the process, be sure to ask the seller some difficult questions. In addition, be sure to acquire representation through an accounting team, attorney, or business broker.

Business Negotiation Strategies

Tactics and Strategies

The world of business negotiations is full of conflicts, so you need to be flexible and firm. However, the state of mind that you are in is vital. Aim for a mutually beneficial outcome, and the entire exercise will become more comfortable. Here are some strategies to employ when you sit down to close a business deal.

1. Think Positively:

In most business negotiation situations, you have more power than you think. Believe you have what it takes to succeed in the negotiation by bringing what the other party needs to the table.

Remember that your positivity is visible throughout the negotiation. Be fully aware about your body language, as well as the tone of your voice when you set foot in the room to negotiate.

2. Practice Makes Perfect:

Negotiations can sometimes prove to be tricky. Remind yourself not to be intimidated by them and find a negotiation style that best suits your personality. Furthermore, if you are familiar with your position's strength and are respectful towards the other party, you are good to go.

Soon enough, handling business negotiations will become second nature to you, and any business deals you close after that will be better for it.

3. Do Not be Anchored:

Experts in the field believe that being the first to say a number ensures that you are in control of the business negotiation. This is because the first figure acts as a reference point for the entire conversation afterward.

You can open with an extreme number, as well, which could either be very low or very high. However, having to go a long way to accommodate the other party indicates that you have been anchored. While this will help avoid an uncomfortable conversation and reflect positively on your personal style, be aware of people trying to anchor you.

In that case, do not feel afraid to state what you are thinking and call out the situation as it is. Voicing your stance will send the message that you will not let yourself get steamrolled in the negotiation.

Business Negotiation Examples

Manufacturing Negotiation examples

There are various daily life and real-world scenarios where the tips mentioned above can be applied. These can help you go a long way when negotiating the sale or purchase of almost anything.

Let’s talk about a situation where you are looking to buy a commercial restaurant. It is priced at $600,000, but research tells you that it is overpriced and can be purchased for $500,000.

However, the seller refuses to adjust the price because they are comparing it to commercial restaurants located nearby. Thus, you may want to do additional research into the restaurant industry, which will tell you that purchasing a restaurant is a ‘tight’ deal. This means that the seller cannot sell the restaurant to another company, even if they are offered a higher price. In such a case, you can offer them a slightly higher price, like $525,000, and grant them 60 days to shop further. If they receive a better offer, they can pay you a simple break-up fee and walk away from the deal. This ensures that both parties are satisfied and have a contingency to fall on, such as the break-up fee in the buyer’s case and an existing bid, where the seller is concerned.

Similarly, the two-companies seeking to enter into a contract can benefit from inclusions. There are certain price points, which you can easily discover through ample research, that can make or break the sale. If you are in the business of selling HVAC systems but are charging a comparatively greater price than that prevalent in the market, you could offer the buyer a free installation or cleaning service. For example, a typical 1000 feet system goes for around $4,000. If you accumulate the cost of a cleaning service with the product, you can charge a figure that goes as high as $4,500, for the benefit of maintenance you will be providing to the buyer.

On the other hand, if you are a distributor of HVAC systems, you can always offer the buyer additional components, should theirs come up with a problem, or accessories to glam up the sale. This way, you both walk away with a favorable deal. A deal like this one will get the seller the price they want, whereas the buyer will be compensated for paying a relatively higher price, through different perks.

Business Negotiation Document Checklist

You’ll likely begin with a preparatory checklist, consisting of questions each party will ask one another before the negotiations start. Ensure you keep a hard copy and a digital copy in your email as they are useful in courts if a conflict or false accusation arises.

Financial documents for the seller to have:

  1. Profit and loss statements that are pertaining to the last 24 months at least.
  2. Current balance sheet.
  3. Cash deposit records.
  4. Letter of credit.
  5. A breakdown of all outgoing costs.
  6. Forecasted business plans and financial information.
  7. Details of the automated financial systems of the business.

Legal documents for the seller to have:

  1. Trading agreements and client contracts.
  2. Employee agreements and contracts.
  3. Franchise agreement.
  4. Safety and work health guidelines.
  5. Leases, if applicable.

Documents for the buyer to have:

  1. Non-disclosure agreement.
  2. Offer-to-purchase agreement.
  3. Personal financial statement form filled and completed.
  4. Letter of intent.
  5. Proof of method of payment.

In addition, the seller must also make their own thorough checklist. This will include ensuring the prospective buyer is able to secure the required finance, whether they have the appropriate experience to run a business and knowing the future plans they have for the business.

Summary

The most important skill that every entrepreneur can possess is that of negotiation . Before you can buy or sell a business, you will need to have essential negotiation strategies in place to bring out the best outcome. Following the tips mentioned above, you as a buyer or seller can ensure that the other party walks away with a deal that benefits them as much as it does you. Remember to be careful and take small steps along the way so you can successfully execute the contract and reap the benefits of a smooth negotiation.

If you need further guidance, feel free to contact us . Our experienced team can answer any questions you may have.

Now, let’s get those negotiations started!

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