Buying and selling businesses is not a simple matter – it is a science and an art. However, if you do decide to go on the journey, be sure to follow the advice of Warren Buffett. Without a plan, business owners can quickly find themselves in a position where they face some serious financial consequences.
To avoid devastating outcomes, there are a few essential techniques (that everyone must learn) before buying and selling businesses. Regardless of when you plan to sell your business, it's important to start preparing for the transaction today. Typically, owners begin thinking about selling their business years before they exit. Why is that? Failure to prepare for the exit could cost you millions when you are ready to sell.
Buy a Business or Start One from Scratch?
One of the most successful entrepreneurs, Ace Chapman, believes that it is always better to buy a business, grow it and sell it than to start a new business. According to Ace, starting a business from scratch takes a lot of time and energy, and unfortunately it may not make any money in the beginning.
‘Never invest in a business you don't understand.’
Warren Buffet
Covering expenses long before the business starts turning a profit is the hardest part. This applies to both brick-and-mortar and online businesses, as both have costs associated with them. To increase the chances of turning a profit sooner and to avoid wasting precious time and losing money, finding an already established business may be the best option.
Unexpected Negotiation Tactics to Close the Deal
Throughout history, people met in old-fashioned markets to trade goods. The amount paid for those goods was always determined through the process of negotiation. Yes, this applies to buying milk, chickens and clothing! Nowadays, negotiating is considered a lost art as the price tag we see is what we expect to pay, except for buying stores, cars and houses.
However, in the business world, negotiating is still crucial. Whenever you are buying or selling a business, effective negotiation techniques are important to close the deal. While buyers are looking for well-priced businesses on favourable terms, business owners are keen to sell at the highest possible price. Therefore, effective negotiation should be a priority for both parties.
Whether buying or selling a business, it is always important to prioritise the key issues. Not every point is worth negotiating, but when negotiating key points, it is important to discuss things face to face or on the phone. Despite today's practice of communicating via email or social platforms, it is important to communicate in person. This is useful for both sides, as it gives everyone a better feeling when it comes to deciding whether or not to close the deal.
One of the most effective negotiation techniques is the use of time and silence. When offered a deal, it may prove beneficial and a good tactic not to react immediately to achieve your goals. Taking a small break or pausing suggests that you are not eager to close the deal and that you may be considering other options. Silence can be very effective and put a certain amount of pressure on the other party.
While silence can be a successful technique to achieve your goals in the process of buying and selling companies, it is always good to avoid too much tension. Similarly, using humour can lighten the atmosphere, which is positive for both sides. Furthermore, this technique helps to ensure that you are perceived positively, as it suggests that you have other options if you do not get what you expect from this deal.
Another useful technique for buying and selling companies is to be open-minded and willing to reconsider certain points. Since this process involves numerous elements that need to be discussed and negotiated, it is usually expected that you will change your mind about some of them. As the buyer learns more about various aspects of the business, some elements that were previously non-negotiable may make sense later.
Assemble a Team of Trusted and Skilled Professionals
Buying and selling a business is always more effective when you have a team of professionals you can trust. Surrounding yourself with an experienced lawyer who will protect your interests is key. He or she will ensure that the entire deal is legally sound and that the paperwork is drafted properly.
Bankers, accountants and business brokers are some other experts you should include in your negotiating team. They can estimate whether the deal will deliver the expected income for a specified period, keep you informed of the latest industry trends and laws, and much more. They can give you important information about current market conditions and whether or not the terms of the deal are favourable to you.
Things to Avoid when Negotiating
During the negotiation, it is perfectly fine to define additional steps and set timelines, but do your best to avoid ultimatums. Fighting to the finish is certainly not the best way to close the deal and buy or sell a business. Besides, it is likely to scare off the other party.
Instead, it is always better to remember that everything is negotiable and propose a modified set of terms that works for both parties. If you are selling, buyers may make offers that typically seem lower than your asking price. However, you should remain patient and negotiate with the buyers, because they usually have alternative offers in mind. In any case, avoid impulsive reactions.
Invest your energy and time to move the buying and selling process forward, because hard work usually pays off. Stay confident and tell the other party what information you need and set reasonable deadlines. Keeping the process moving will increase the value of your negotiation and maintain everyone's interest.
Know Your Worst-Case Scenario
People decide to buy a business for two main reasons: to make money and because they often have a passion for the business. Those who decide to sell a business often do so for one reason: to make money. So before deciding to buy or sell a business, ask yourself the following questions:
- What is the worst situation that could happen?
- How can the worst situation affect me?
- How can the worst-case scenario affect my financial situation?
- How long would it take to recover from the worst-case scenario?
By considering the likelihood of these scenarios, you will not only avoid the possible element of surprise, but you will also feel confident when making the final decision.
Put these buying and selling techniques into practice and you will be well on your way to acquiring more business opportunities.
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