How to negotiate when buying a business

| 4 min read

Once you have found the ideal business that meets your requirements, the next step is to negotiate the best deal possible. Before the business is in your hands, you will need to overcome a variety of obstacles, and you will need to conduct your due diligence. One significant aspect of the buying process will be the negotiations which may at times become prolonged. Luckily, you can be prepared for this and strike through a deal which provides value.

Consider the whole picture

There can be a number of reasons why someone would want to sell a business, and it is up to you to get a clear idea for why the owner is eager to sell. Dig a little deeper and you may be able to find red flags with the business. On the contrary, the owner may simply be selling the business to relocate abroad. In this instance, you won’t need to do much digging. However, there may be other reasons why the owner wants to sell, and it may because they are struggling, wary of a new competitor, or worried about the long-term outlook. Of course, the owner may not give you the full picture, which makes it vital to conduct your own due diligence to ensure that you are making the correct decision.

Be clear with pricing

Don’t jump in and immediately accept the asking price. The first rule of negotiations is to see the asking price as an opening point rather than an end point. Usually, this price tends to be ambitious, and it may not be indicative of the actual value. To get a clear idea of valuation you can compare the sales prices of similar businesses in the area. Additionally, you can conduct a thorough check of the financial information and seek advice from a professional. It is important to be clear with all of the ins and outs of the business, which means you will need to see balance sheets, cash flow statements, and tax returns. Positive signs to look out for include consistent receipts, sustainable profit margin, and a decent cash flow.

Dig deeper into the business model

It is important not to rush your decision when buying a business. There may be some appealing aspects that immediately standout, but you must also do a deeper dive into how the business operates. Consider the location, and whether there are any factors that would make the location a disadvantage in the future. Additionally, you will also want to measure the sales trends, and the economic outlook for the specific market. Find out more about the possibilities of expansion, and whether there are any avenues available to cut costs and to raise prices. Increasing margins may not be so simple, and it is important to identify any potential stumbling blocks before you finalise the deal.

Know exactly what you are purchasing

It is essential to have the full details of everything that will come with the business. Not every purchase will be the same since some buyers will want to acquire stock, equipment, and the premises. Whereas other buyers will simply be looking to merge with a competitor and attain their customer base. Make sure that your proposal is detailed and covers everything you want (and anything that you don’t). This can help to smooth over the negotiation process. Make sure that your offer reflects on what you are buying. For example, if you are buying equipment, you may want to check on the condition of it.

Remain professional throughout the process

Negotiations can get heated, but it is vital to stay professional throughout the process. The best deals are made when both parties are cordial with one another. Be willing to stand firm, but don’t go overboard. You may need to seek the advice of the owner to make the transition as smooth as possible, and this will require a healthy working relationship. Avoid being overly picky and critical of the owner; instead focus on reaching an agreement that suits both parties.

Closing thoughts

You should expect negotiations to occur when buying a business, and it is vital to be prepared before making the move. It should now be apparent as to which factors you should look out for in order to get the best deal. Every purchase tends to be different, which means you must conduct your analysis specifically for your requirements.

Please note that the information provided on this page:

  • Does not provide a complete or authoritative statement of the law;
  • Does not constitute legal advice by Net Lawman;
  • Does not create a contractual relationship;
  • Does not form part of any other advice, whether paid or free.
Contact us about this article

We would love to hear what you think about this article and how we could improve it. Please do let us know. However, we shan't be able to reply to your specific questions. If you have a question about a document, please contact us.

Leave feedback about this page