It’s important to gauge the type of mentality a seller has about negotiating before you start the actual negotiations when buying a business for sale.
Similarly, a buyer has to understand their own general strategy regarding negotiations. For a seller, the very nature of their business will dictate how they are going to approach the negotiation stage. For example, in businesses where the seller is actively involved in purchasing inventory for the company, or in ones that compete mainly on price you can almost guarantee that the seller is someone who expects prices and terms to be negotiated back and forth.
While some people are truly not comfortable with negotiating, others do it for a living, and so that mindset will certainly extend to the selling, or buying of a business.
The challenge comes into play when one side adapts the wrong strategy and quite frequently, this leads to a breakdown in discussions and more often than not, the inability of the parties to come to an agreement.
Think about it: if a buyer over negotiates with a seller who is not comfortable or confident in this scenario, the seller will likely abort the discussions.
Personally speaking, I am very much of a “here’s my terms and let’s get a deal done without too much back and forth” type of person. Not that I don’t enjoy or feel comfortable in a long drawn out negotiation, but the fact is I find it to be too time consuming. In most cases it works well. Although, there are times where the other side just wants to get into a constant seesaw battle and that’s fine too.
However, the single most important thing of course is to know in advance how the other party will conduct themselves. Listen to their answers and anecdotes and descriptions of the business, the sales process of their business and every word they volunteer. Ask them how they arrived at their asking price and deal terms and how set are they or their level of motivation for selling. The key phrase to look for is when a seller may say “I’m negotiable” or conversely, “I have my price and if I don’t get it I’m not selling”. Those cases clearly dictate their strategy. As mentioned earlier, a buyer has to understand their own mindset as much as the other side’s. If they like to negotiate by nature and the other party doesn’t, they have to adjust their approach, or vice versa.
Regardless of a buyer or seller’s comfort or strategy regarding negotiations, the fact is that the purchase of any product can be negotiated and obviously, the larger the transaction, the greater the extent of negotiation. To this end, you had better be comfortable with this stage of the business buying process.