🤔 Should you negotiate Price or Terms?

Good morning to you the business buyer, the retiring owners going to play golf and everyone completing deals this week.

This week we had 215 new businesses listed.

As you know our mission is to help you find your perfect Business For Sale.

So today we break down:

• Should you negotiate on the price or the terms of a deal?

• Plus the 7 most interesting new businesses this week 👇

7 Most Interesting Business For Sale this Week:

Should you negotiate Price or Terms?

When looking at a business for sale, the most obvious factor to consider is price. It is listed publicly on listings and lets you know if it would be worthwhile for you to find out more.

However as you negotiate the deal to buy the business, terms can be even more important.

The best example I have heard of this, is if you were offered $10m for your business. That seems like a great price to most people. But if the terms are that it is paid in $1 every week then suddenly it looks a lot less interesting.

When negotiating to buy a business, it's important to strike a balance between price and terms. Here are the key things to consider when trying to get the balance right:

Price: The purchase price is typically the most visible and tangible aspect of a business transaction. Sellers love to promote the price they sold their business for but they rarely announce the exact terms. Remember to take this into consideration when you hear what other businesses have sold for.

• Determine the fair market value: Hopefully the seller or broker have conducted a thorough valuation of the business to assess its worth. Consider factors such as financial performance, assets, liabilities, market conditions, growth potential, and comparable transactions in the industry. This is the public price that will provide a benchmark for the negotiation.

• Justify your offer: If you propose a lower price than the asking price, be prepared to provide a rationale based on the business's strengths, weaknesses, and risks. Demonstrate how your offer aligns with the market value determined above.

• Consider the seller's perspective: Understand the seller's expectations, motivations, and any financial obligations they may have. This knowledge will help you craft an offer that is reasonable, appealing, and addresses their concerns. The most successful buyers are the ones that are able to create a win, win result with the seller. If your offer is lower than the asking price you may want to include some better terms

Terms: While price is critical, the terms of the deal can significantly impact its overall feasibility and success. Pay attention to the following elements:

• Payment structure: Determine the payment terms, including the initial up front payment, instalment plans, or potential seller financing. Assess the impact of these terms on your cash flow, ability to manage the business, and the seller's confidence in your commitment. In the example above an offer may be high but have worse terms or be low with better terms.

• Transition assistance: Negotiate a reasonable transition period during which the seller can provide guidance, training, or consulting to facilitate a smooth handover. Define the scope, duration, and compensation for this assistance. If the seller is a key person in the business then this will be crucial for a smooth changeover.

• Assets Included: Specify the assets and liabilities included in the purchase, such as inventory, equipment, intellectual property, contracts, leases, and outstanding debts. This could be especially important for any businesses that include property either through acquisition or through a lease.

• Retention of key employees: If key employees are critical to the business's success, negotiate terms to retain them during the transition. Consider incentives, employment contracts, or bonuses to ensure their commitment post-acquisition.

• Earn-Out: Structure the deal with an earn-out arrangement where a portion of the purchase price is contingent upon achieving specific future performance targets. In a similar vein stability payments allow you to pay the seller as long as the business continues at the same revenue level.

In summary, while price is a crucial component, it's essential to consider the overall terms of the deal when negotiating to buy a business. Strive to find a balance that meets your financial objectives while addressing the seller's concerns.

Ultimately, the goal is to reach an agreement that is favourable to both parties and sets the stage for a successful transition.

The best way to do this is to understand the sellers reasons for selling and making an offer that helps them to achieve their goals whilst helping you achieve your goals.

Business For Sale around Australia

Till next Tuesday!

Sam from Business For Sale

PS. If like me you love negotiating and doing deals. Check out the book ‘Never Split the Difference’ it covers all ideas of how to improve your negotiating using examples from the authors time as an FBI hostage negotiator.