Negotiations can be tricky affairs. One wrong move can undo a tremendous amount of work. In negotiations, it is best to take a moment and think about where the other party is coming from.
What are their needs and how best can you meet them? Understanding your buyer’s motivation increases the chances of a successful negotiation.
What Appeals to Most Buyers?
When it comes to selling a business, you likely will not know your buyer personally. This means that you will not know what they value most, how exacting their standards will be, and how easy or challenging they will be during negotiations. That’s why it is imperative to err on the side of caution and act in such a way that would appeal to most buyers.
Ensuring that your business is in strong financial health means that your business will be appealing to both a corporate executive as well as an individual buyer with a leadership/managerial background. Keep in mind that individuals who buy businesses will want a strong ROI (return on investment), and often they will not move forward unless they are convinced the ROI will be there going forward.
Playing into Emotions
In general, buyers tend to be the most excited at the beginning of the sale process. It is at this point that you can expect your buyer’s passion to be its strongest. As a result, the first stages are when you want to keep your presentation and approach the most realistic. The reason is that once the surge of passion has worn off, your buyer may otherwise feel that you have tried to oversell your business.
Being Forthcoming with Information
It is quite common that you will not at first know if your buyer has previous experience in your market. As a result, you shouldn’t assume that they understand anything about your business or industry. In short, it is definitely in your best interest to be very honest about your business and what is involved in running it. If there are issues that they will invariably discover, then it is best to go ahead and disclose those issues early on as it establishes trust and goodwill.
Understanding Expectations
Another area to consider is what a buyer may expect of you after the sale. A buyer who already possesses a background in your niche would already be very familiar with the ins and outs of your industry. Having you around after the sale long-term may not be viewed as necessary or beneficial.
However, with that said, the exact opposite may also be true. You may be dealing with a buyer who will require you to stay on for training for a negotiated time period. Typically, a buyer will want the seller to train for a specific time period as part of the purchase (say 4-6 weeks) and then the seller may be asked to act as a paid consultant, as needed for another negotiated time period. Again, that’s why it’s best to not make assumptions and make sure your terms would appeal to a wide variety of backgrounds. The reality is most buyers don’t know what they don’t know and they tend to overestimate their need for the seller. Most buyers want the comfort of knowing that the seller will be there if a need arises.
An Investment of Value
Invest the time to understanding your buyer’s motivation. The reality is every buyer is different. The more you understand what it is that your buyer wants out of the transaction, the greater your chances of focusing on the areas of your business that best match those expectations.
When it comes to the motivations and concerns of prospective buyers, work with a Certified Business Broker who understands these issues so that it can be a smooth transaction for all involved.
