The Art of Buying and Selling Businesses
“Never invest in a business you cannot understand.” – Warren Buffet
Buying and selling a business is by no means a simple feat — it’s a science and an art. However, when you decide to embark on the journey be sure to take the advice of Warren Buffett. Without a plan entrepreneurs may soon find themselves in a position to deal with some serious financial consequences. In order to avoid devastating outcomes, there are a few essential techniques (that everyone must learn) before buying and selling businesses.
Regardless of when you think you might offer your business for sale, it’s important to start preparing today for that transaction. Generally owners think 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.
Buying a business or starting one from scratch?
One of the most successful entrepreneurs, Ace Chapman, believes that buying, growing and selling a business is always better than starting a new one. According to Ace, starting a business from scratch takes a lot of time and energy, and unfortunately it may not bring in any money in the beginning.
Covering expenses long before the company is turning a profit is the most challenging part. This applies to brick and mortar businesses and online businesses, since both incur expenses. In order to increase the chances for accumulating profit sooner and to avoid spending valuable time and losing money, finding an already established business may be the best opportunity.
Surprising negotiation tactics to close the deal
Throughout history, people gathered at old-fashioned markets to trade goods. The amount paid for those goods was always determined through the process of negotiation. Yes, that goes for buying milk, chickens and clothes! Today, negotiation is a lost art since the price tag we see is what we expect to pay, with the exception of buying businesses, cars and houses.
However, in a world of business, negotiation is still critical. Whenever you are buying or selling a business, effective negotiation techniques are essential to close the deal. While buyers search for low-priced businesses at favorable terms, business owners are interested in selling at the highest price possible. This is why effective negotiation should be a priority for both parties.
Whether buying or selling a business, it is always important to prioritize key points. Not every issue is worth negotiating, however, when negotiating key points, it is important to discuss matters face-to-face or over the phone. In spite of today’s practice to communicate via e-mail or through social platforms, it’s essential to communicate in person. This is useful for both sides, since it gives everyone better sense when deciding whether to settle the deal or not.
One of the most effective negotiation techniques is using time and silence. When offered a deal, not responding immediately can prove to be favorable and a good tactic to achieve your goals. Taking a small break or pausing suggests that you are not anxious to close the deal and that you might consider other options. Silence can be very powerful and can transmit a certain amount of pressure to the other party.
While silence can be a winning technique for achieving your aims in the process of buying and selling businesses, it’s always good to avoid creating too much tension. Likewise, using humor can lighten up the atmosphere, which is positive for both sides. Moreover, this technique will add to your positive perceived status, suggesting that you have other options if you don’t get what you want from this deal.
Another useful technique for buying and selling businesses is to be open-minded and willing to revisit certain points. Since this process includes numerous elements to be discussed and negotiated, changing opinions about some of them is usually expected. As the buyer learns more about different aspects of the business, some elements that were not negotiable earlier may make sense later on.
Secure a team of trustworthy and savvy experts
Buying and selling a business is always more effective when having a team of experts you can trust. Surrounding yourself with an experienced attorney who will protect your interests is key. He or she will ensure the entire deal is legally valid and the paperwork is set up properly.
Bankers, accountants and business brokers are a few additional experts you should include on your negotiating team. They can estimate if the business will provide the expected income for a certain time period, inform you about the latest industry trends, laws and more. They can give you important information about the current market conditions and whether or not the terms of the deal are beneficial to you.
Things to avoid when negotiating
While negotiating, it is completely fine to define additional steps and set schedules, but do your best to avoid ultimatums. Playing tough is certainly not the best way to conclude the deal and buy or sell a business. Moreover, it will probably drive away the other party.
Instead, it is always better to remember that everything is negotiable and suggest a modified set of terms that will work for both parties. If you are selling – buyers may offer deals that seem typically lower than your asking price. However, you should remain patient and negotiate with buyers – since they usually have alternative offers in mind. Avoid impulsive reactions at all costs.
Invest your energy and time in keeping the buying and selling process moving forward, as diligence usually pays off. Remain confident and tell the other party what information you need and create sensible deadlines. Keeping the process moving forward 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 people are often passionate about the business. Those who decide to sell a business often do it for one reason: to make money. So, before deciding to buy or sell a business, you should 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 case situation?
Once you consider the likelihood of these scenarios, not only will you avoid the possible surprise factor, but you will also feel confident about making the final decision.
Implement these buying and selling techniques and you will be on the road to attracting more business opportunities.
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Hi I’m Jaime. Each and every week I bring you the top business advice from the people who know best.Learn More