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The Art of Buying and Selling Businesses

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Buying and selling companies is by no means a simple matter—it is a science and an art. However, if you decide to embark on the journey, be sure to follow Warren Buffett's advice. Without a plan, entrepreneurs can soon find themselves in a position where they face some serious financial consequences.

To avoid disastrous results, there are a few essential techniques (that everyone needs to learn) before buying and selling businesses. Regardless of when you plan to put your business up for sale, it is important to start preparing for this transaction today. As a rule, owners think about selling their business years before they want to exit. Why is this? Failure to prepare for exit could cost you millions when you are ready to sell.

To Purchase an Existing Business or Begin Anew?

One of the most successful entrepreneurs, Ace Chapman, believes that it is always better to buy, grow and sell a business than to start a new one. According to Ace, it takes a lot of time and energy to start a business from scratch, and unfortunately, it may not make any money in the beginning.

«Never invest in a business you don't understand.»

Covering expenses long before the business turns a profit is the hardest part. This is true for both brick-and-mortar and online businesses, as costs are incurred in both cases. To increase the chances of making a profit sooner and to avoid losing valuable time and money, finding an already established business may be the best option.

Negotiation Techniques to Seal the Deal

Throughout history, people met in old-fashioned markets to trade goods. The amount paid for these goods was always determined by the process of negotiation. Yes, this is true for buying milk, chickens, and clothes! Nowadays, bargaining is a lost art because the price tag we see is what we expect to pay, except for buying shops, cars, and houses.

However, in the business world, negotiation is still crucial. Whenever you buy or sell a business, effective negotiation techniques are important to close the deal. While buyers are looking for good value businesses on favourable terms, business owners are interested in selling at the highest possible price. Therefore, effective negotiation should be a priority for both parties.

Whether you're in the process of buying or selling a business, it's crucial to prioritize the key points that truly matter. Not every detail requires negotiation, but when it comes to those significant aspects, it's essential to engage in face-to-face or phone discussions. Despite the prevalence of email and social platforms for communication, there's no substitute for in-person interaction. This approach benefits both parties involved, as it provides a better understanding and allows for a more informed decision on whether to proceed with the deal.

One powerful technique in negotiation is the strategic use of time and silence. Rather than immediately reacting to an offer, taking a momentary pause can be a beneficial tactic to help you achieve your goals. This pause signals that you are not desperate to close the deal and may be considering alternative options. The power of silence can apply significant pressure on the other party, creating an advantageous position for yourself.

While silence can be a successful technique to achieve your goals in the process of buying and selling businesses, it is always good to avoid too much tension. Likewise, using humour can lighten the atmosphere, which is positive for both sides. Furthermore, this technique helps you to be perceived positively as it suggests that you have other options if you do not get what you want from the business.

Another useful technique for buying and selling businesses is to be open-minded and willing to reconsider certain points. As this process involves many elements that need to be discussed and negotiated, one is usually expected to change one's mind about some of them. As the buyer learns more about different aspects of the business, some elements that were not negotiable before may make sense later.

Teamwork is Key

Buying and selling a business are always more effective when you have a team of experts you can trust. Surrounding yourself with an experienced lawyer who will protect your interests is key. He or she will ensure that the whole deal is legally valid and that the paperwork is drawn up properly.

Bankers, accountants and business brokers are some other experts you should include in your negotiating team. They can assess whether the business will deliver the expected income for a certain period of time, they can inform you about the latest industry trends and laws, and much more. They can give you important information about the current market conditions and whether the terms of the deal are favourable to you or not.

Negotiation Pitfalls to Avoid

During the negotiation, it is perfectly fine to define additional steps and set timetables, but do your best to avoid ultimatums. Playing hardball is certainly not the best way to close the deal and buy or sell a business. Besides, it is likely to alienate 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. When you sell, buyers may make offers that typically seem lower than your asking price. However, you should remain patient and negotiate with buyers, as they usually have alternative offers in mind. Avoid impulsive reactions at all costs.

Invest your energy and time to move the buying and selling process forward because diligence typically pays off. Stay confident and tell the other party what information you need and set reasonable deadlines. Keeping the process moving will add value to your negotiations and keep everyone interested.

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 you decide 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 situation affect my financial situation?
  • How long would it take to recover from the worst situation?

If you consider the likelihood of these scenarios, you will not only avoid the possible surprise factor, but you will also feel confident when you make the final decision.

Implement these buying and selling techniques, and you will be well on your way to capturing more business opportunities.

Learn More?

If you are interested in this topic, I would be happy to talk to you about it in an initial, non-binding conversation. Just leave me a message under the following link and I will get in touch with you.