Imagine finding the perfect buyer after weeks of searching only for them to offer you 25 percent less than your asking price. If this situation happens to you, you’ll want to know how to negotiate your business sale to close the gap.
The good news is that negotiating your acquisition is encouraged and expected. That opening offer is just the first serve in a tennis match: an opening gambit to get things moving. And in an acquisition, you can both win.
There are many ways to negotiate a deal on Acquire.com and in the open market – whether through adjusting pricing, deal structure, or adding and subtracting additional assets. Here’s our advice for how to negotiate a business sale.
Preparing for Negotiating a Business Sale
Negotiation starts with preparation. Don’t expect to achieve your acquisition goals by walking into the negotiation room blindfolded and with your hands tied. First, research:
- Your business’s worth on the market (calculate your valuation)
- Your ideal sale scenario (deal structure, post-closing commitments, and so on)
- A range of acceptable figures you’d be willing to sell for
How Much Is Your Business Worth? (Valuation)
You might’ve invested your life savings and a decade or more into building your business. Unfortunately, that doesn’t always result in the valuation you want or feel you deserve. To negotiate effectively, start with an objective view of what your business is worth.
There are five different methods professionals use to evaluate their businesses. Some valuation methods are better for certain types of businesses and others are more favorable. You wouldn’t value a one-year-old SaaS business the same way you’d value a ten-year-old content website.
If you’re running an online business, finding a fair market price is considerably easier via the growing number of online M&A marketplaces like ours. You can easily browse listings on Acquire.com to see the asking prices of similar sites.
We also help sellers find their average market value via our biannual multiples report. If a buyer offers less than the market price, you can point them to the average multiples at which startups got acquired on our marketplace.
Unhappy with your valuation? Read our article on how to increase your startup’s valuation.
Setting Your Ideal Sale Scenario
Now that you know your valuation and calculated a market-driven asking price, decide on your ideal sale price. A number that would make you sell your business without a moment’s hesitation. You’ll never get a higher price than your initial asking price (unless you’re lucky enough to start a bidding war). Many deals close under their asking prices.
You’ll need to enter an asking price before listing on Acquire.com. Buyers won’t engage with you otherwise. Your asking price should entice interested buyers and repel lowballers. Most negotiation experts will tell you that counteroffers tend to remain within a certain percentage of your opening price. If a buyer were to make a first offer at 100 percent lower than your ideal price, you’re probably better walking away or drastically adjusting your expectations.
Always back your asking price up with facts. You can do this within your listing description and by connecting growth and revenue metrics. We also check listings to ensure they’re within a typical range for startups of similar types and attributes. For more information, read our article on how to create the perfect listing.
One small pricing tip: Research suggests that numbers ending in zero tend to feel like placeholder figures open for bargaining. A less rounded number, like $12,812, feels more like a thoughtful calculation.
Setting Your Walkaway Point
Now you know your ideal sale price, determine the price at which you’ll walk away from the deal.
A walkaway point is sometimes referred to as the best alternative to a negotiated agreement, or BATNA – the actions you’ll take if negotiations fail. The term was coined in 1981 by Harvard professors Roger Fisher, William Ury, and Bruce Patton in their classic book Getting to Yes: Negotiating Agreement Without Giving In.
Walkway points are easy to set if you’ve done the requisite legwork to value your business. If someone offers significantly less than your objective valuation, you can easily say, “Thanks but no thanks,” and end negotiations politely.
During Negotiations
Now that you’ve laid the groundwork for negotiations, develop a process for talking with buyers. Negotiation generally involves two stages:
- Understanding your buyer
- Negotiating and building a relationship with your buyer
Understand Your Buyer
Negotiations are about people first and outcomes second. Therefore, take the time to understand potential buyers and their goals. This will allow you to negotiate a favorable outcome for both of you.
In his famous book, Never Split the Difference, (a classic in the world of negotiation) expert CIA hostage negotiator, Chris Voss, describes negotiations as an act of discovery. He sees negotiation as a way to uncover as much information as possible rather than a battle of wits.
Buyers may be trying to acquire your business for different reasons:
- Some want a small project to work on in their free time.
- Some are ready to become the CEO of a profitable business.
- Some have only a little time to put into a project.
- Some want to make this their full-time job.
- Some have little-to-no experience in your chosen industry.
- Some are experts in your industry.
Say you’re having trouble negotiating with a buyer who’s reluctant to meet your asking price. If you discover they’re looking for a passive income project and your business requires minimal effort to maintain, focus on this during negotiation. You would be wasting your time mentioning other benefits like the business being in a growing industry.
If you really want to engage a buyer and get a deal moving, ask them questions too. Anything you learn can be used later when negotiating the deal. Some questions you might ask include:
- What are you hoping to do with this business?
- Do you have a background in this industry? Or, Why do you want to enter into it?
- Are you hoping to sell this business again later?
Negotiate and Build a Relationship
Now that you understand your buyer, you are ready to begin negotiating.
Negotiations are a time to build a mutually beneficial relationship with your buyer, not to ram a deal down their throat. Chances are, you’ll stay in contact long after your acquisition closes to provide transition services, answer any further questions they might have, and maybe potentially work together on future projects. These relationships quickly sour if one or both parties feel the exchange wasn’t mutually beneficial.
The following are some common techniques you can use to add value for your buyer while steering negotiations toward your desired sale price.
Generate Value
There’s more to value in a sale than cash. If a buyer can’t meet the price you want, try adding something you could do to help justify it (sharing leads and contact lists for example). Maybe you can teach your buyer how to run your business more effectively.
According to a negotiation model used in the CIA called The Ackerman Model, adding a non-monetary item to a deal may also suggest to a buyer you are at your price limit.
Use Factual Support
Remember all that preparation you did before you started to evaluate your business? This is your reference book when negotiating your price. A good buyer will also use factual support when negotiating their end of the deal and financial buyers will use even more complex financial models to arrive at their prices – and you should too. Provide evidence for your claims.
Give Options (and Deal Structures)
Everyone likes to have choices. Instead of refusing an offer, you can always give a buyer other options that favor both of you. This advice can be used in tandem with generating value. Maybe you’re willing to accept a deal at one price minus X and Y assets or will add Z if they’re willing to buy for a higher price.
Consider different deal structures too. Not every sale needs to be all cash upfront. You could offer an earnout, seller financing, seller holdbacks, or some other deal components to de-risk the acquisition for the buyer. Read our blog on common deal structure options to understand how deal components can be useful negotiation tools.
Take Your Time
Rushing a deal puts you at a disadvantage. A buyer sensing your urgency might feel they can secure a lower sale price than you’re comfortable with. That said, time is also a deal killer. Taking too long to negotiate is one of the primary reasons M&A deals fail.
So how can you prevent either of these scenarios? Set mutually agreed deadlines for each stage of negotiation. That way you both have the space to ponder the deal and negotiate with a clear head. You may want to consider creating a Slack channel, for example, to update each other on weekly progress or other items.
Know When to Leave
M&A negotiations should always remain positive. Never threaten or cajole buyers into accepting a deal. However, sometimes you need to signal an offer is off the table or that negotiations aren’t going well without verbally saying it.
In worst-case scenarios, extended periods of silence and walking away from the table are sometimes necessary strategies. If a buyer is consistently lowballing you, it’s better to pause than resort to hostile tactics.
Just remember, looking at an M&A transaction as, well, a transaction is the surest way to lose track of your goals and leave both of you feeling unhappy. For more information about negotiations, read our article about negotiating letters of intent (LOIs).
Access Expert Negotiation Advice When You Sell on Acquire.com
You’ll rarely find an expert in negotiating M&A transactions outside of a brokerage as most business owners sell their company only once. However, the few individuals who have presided over dozens or even hundreds of transactions can help you negotiate better deals.
Good advice helps in every single stage of the process mentioned above. An expert can help you set realistic prices and walk-away points. They can immediately put you inside the heads of your potential buyers and tell you exactly how to negotiate a deal so that you get a favorable outcome. So how do you find this great advice?
Once you’ve signed up for a free seller account on Acquire.com, get in touch with our trained M&A professionals and brokers. They’ll give you expert advice when selling your startup based on viewing outcomes from thousands of deals on our platform.
Sell your business the easy way by signing up for your free account today.
Who Should Name Their Price First in a Negotiation?
Many famous negotiators like Chris Voss believe naming your price first puts you at a disadvantage. If you let the other party name their price first, you may get lucky and they’ll offer a better price than you even planned to bargain for.
That said, the first price tends to “anchor” negotiations. If the starting price is far below your expectations, you may never be able to negotiate near your desired price.
On acquisition marketplaces, this is a moot point as sellers are required to name their asking price first. This ultimately benefits both the buyer and seller. By clearly stating an opening price, sellers can automatically eliminate low-balling buyers and buyers gain a clear idea of how much they’ll be spending.
How Can I be a Good Sales Negotiator?
According to most sources, good sales negotiators:
- Are empathetic
- Do their research
- Look at negotiations as collaborative
- Never accept an unfavorable deal
- Take their time
It’s important to note that good negotiators should be willing to work with opposing parties to reach a favorable agreement for both of them. However, all good negotiators will walk if they cannot reach an agreement that is at least somewhat favorable to themselves.
How Can I Know My Sale Price Was Fair?
To tell if a sale price is fair, compare it with the sale prices of similar businesses on online marketplaces. We release a biannual multiples report detailing the average prices for which certain online businesses sell.
However, business is rarely fair. Some businesses only require a few years of work to reach seven-figure exits. Sometimes ten-year businesses end up unprofitable and bankrupt. Only you know if your sale price fairly compensates you for your time and effort.
What Should You Not Do in a Negotiation?
When negotiating, you should never or rarely:
- Be threatening or stern.
- Focus on competing with the other party over collaborating.
- Only focus on negotiating tangible angles like price (everything is a negotiation).
- Fail to research the other party.
Most experts say that successful negotiation always comes from viewing it as a collaborative problem that needs to be solved by both parties. Both parties should believe there is an outcome where they both benefit from negotiations.
Can You Negotiate the Price on Acquire.com?
We pride ourselves on letting buyers and sellers negotiate deals of any size. When you use our service, you can set your own sale price as long as it’s within reason. Buyers are free to counteroffer when they draft an LOI and both parties can hash out the details in our online chat feature.
We also give you tools to draft complex legal documents like letters of intent (LOIs), non-disclosure agreements (NDAs), and non-competition agreements without needing to pay extra fees to a lawyer. These let you negotiate other aspects of your deal just as you would when working through a traditional brokerage (just with fewer fees).
The content on this site is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional before any M&A transaction. It is not Acquire’s intention to solicit or interfere with any established relationship you may have with any M&A professional.
