How To Negotiate When Buying a Business.

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How To Negotiate When Buying a Business.

Posted by BBA
14 February 2019
 

Negotiating the best deal for a buyer is a perfect blend of timing and strategy. It Is a buyer's market, and thousands of dollars can be saved on a purchase price while still providing a win/win for both parties.

Finding what you think is the right business to buy is not easy for many, but it's just one part of an important lengthy process.

THE FUN BEGINS - THE DEAL

Having searched websites for months in search of the right business to buy and having spoken to a varied range of helpful and unhelpful business brokers over the Journey, you have finally found the business that appears to be right for you.

It looks good. You've done your homework and have had a close look at the financials provided as well as the systems and procedures in place. The location is Ideal and there appears to be a strong market growth which will support the business going forward. Staff appear motivated and suppliers have been paid on time. You have spoken to your accountant and whilst he/she may be nervous, they have done their Job as a devil's advocate and told you all the pitfalls. You are still keen and prepared to make an offer.

 

The 5 key things to remember in negotiating a deal

1 IGNORE THE ASKING PRICE - The asking price for a business Is a vendors wish price. Unlike real estate, where typically a reserve is a low range for a purchase, an advertised asking price for a business Is the high point. There is only one way to go - down. There are so many factors that determine the value of a business and no exact rule. Some businesses have a valuation based on turnover and others on profit multipliers, and many have a combination of these.

Ask a business broker how the asking price was determined and see how quickly they can justify the valuation. If you have done your homework, you will have a good idea of a realistic price range.

2 BUYERS MARKET - TAKE ADVANTAGE - It's a buyer's market, where where there are thousands of businesses for sale. Some are excellent acquisitions and others have owners desperate to escape an unprofitable venture.

You are in control - It is your offer that will be presented. Don't be taken advantage of by business brokers trying to achieve a top price for their vendors, as that Is supposedly their Job.

Obtaining a loan to purchase a business can be difficult, and many businesses do not have the documentation to support their asking price. Banks will find it difficult to lend on businesses that have reported low profitability due to many reasons, not the least due to efforts to minimise the business' tax liability.

If you have cash or security in personal assets, and are not relying on a loan from the bank linked to the business, you can therefore present an offer not subject to finance - you have won the Jackpot. An offer not subject to finance will save you thousands on the purchase price.

 

3 IT'S NOT JUST ABOUT PRICE  - Negotiation is a strategy, and there needs to be a win/win for both parties. The offer is not just based on price but various other terms conditional to a successful acquisition. In many cases a buyer will require the existing vendor to assist them through the transition period. This Is such an important element to ensure the business continues to trade smoothly.

The deal should be a give and take relationship, and in doing so, ensure you focus on the bigger picture, and the vision you had when you first discovered the business. Having a supportive and helpful exiting vendor assisting you with contacts, suppliers, staffing and existing client introductions, is worth a lot more than saving a few thousand dollars upfront.

4 KEEP THE EMOTION OUT OF IT - Finding the right business can be exhilarating after months of searching, then finally discovering a business that is within reach of your budget. Take stock - this is a life changing decision and you need to have any emotion put to one side. Be practical, analytical, and seek advice. If you have not negotiated before or are too emotional, have a professional represent you. That's exactly what we do for buyers every day, which is totally removes the emotion from getting in the way.

 

5 KEEP YOUR OFFER DEADLINE SHORT - When making an offer, you must take control. If you have determined the price you would pay, and on what conditions you would offer, present the offer in a written format, pay a deposit and set a deadline for acceptance. Put the pressure back on the business broker and vendor. The broker wants the sale as they only get commission on a sale, so use this to your advantage. Have the broker working on your behalf?

Negotiating the best deal for a buyer is a combination of strategy and timing. It Is a buyer's market, and thousands of dollars can be saved on a purchase price while still providing a win/win for both parties.

Rob Semmel is General Manager of Business Buyers Advocacy Australia. An agency exclusively representing the business buyer to find the right business on the right terms at the right price.

As a CPA, licensed agent and Business Buyers Advocate, Rob and his team can help buyers navigate the murky waters of the business search. To contact Rob email; rob@businessbuyersadvocacy.com.au or visit www.businessbuyersactvocacy.com.au

 

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