Posted 12-22-2022 1:05 pm by
Whether you are selling your business in Las Vegas, Summerlin South, Spring Valley, Henderson, Enterprise, Paradise, Boulder City, North Las Vegas, or Whitney, negotiating successfully can be the difference between selling your business profitably or the deal falling apart.
Over the years, Advantage Commercial Brokers has worked with thousands of business sellers and buyers, and witnessed many styles of negotiation. Some styles of negotiation lead to more success than others when it comes to selling a business. The following are recommendations on how to negotiate successfully during a business sale.
Negotiation Tip 1: Do not overprice the business from the start. Selling a business is different from selling a house. In the residential real estate market, it is a common strategy to list high, and drop the price later if no buyers come forth. In our experience, this is not a good strategy when listing a business for sale. Business buyers tend to have a different mindset than homebuyers do. If a business is overpriced, business buyers usually ignore the listing altogether and do not even bother to make an offer. After the business sits on the market for a while and the price is later reduced, business buyers may wonder what is wrong with the business. Business buyers tend to be sophisticated buyers and are unlikely to overpay for a business simply because the listing price is high. In our experience, it is a better strategy to list the business at fair market value from the start. When multiple parties see that the business is priced right, the business seller may receive offers from multiple buyers, possibly bidding the price up or at least allowing the seller to choose the best buyer for the business.
Negotiation Tip 2: Do not discuss terms during the initial buyer/seller meeting. After signing the non-disclosure agreement and reviewing the marketing package, buyers who show further interest are likely to request an after-hours facility tour or off-site meeting with the seller prior to making an offer. At this initial buyer/seller meeting, some buyers may use the opportunity to not only gather information on the business, but also gather information on the kind of terms the seller is looking for. Examples of the latter include: Would you consider selling financing? What kind of seller financing terms are you looking for? Is there any flexibility on the asking price? What kind of training or transition assistance are you willing to offer after closing? How soon are you looking to close? And so forth. The problem with discussing terms of the deal during the initial buyer/seller meeting is that it gives an advantage to the buyers knowing what kind of terms the seller is willing to accept. As business brokers representing the seller, the brokers at Advantage Commercial Brokers will intervene and gently remind the buyers that the initial buyer/seller meeting is for gathering information on the business operations only, and that it is not the time or the place to negotiate the deal. After the meeting is over, the brokers at Advantage Commercial Brokers and the buyers will meet separately and come up with offer terms that make sense to the buyers. A formal offer will be prepared and presented to the seller for consideration. It is our experience that such an approach gives the seller the best chances of receiving the best offers.
Negotiation Tip 3: Listen to the advice of an experienced third party. In a multimillion-dollar transaction, it is common to see the buyers and sellers represented by their attorneys. Attorneys offer important legal advice, and it pays to listen to one’s attorney. Having that said, attorneys sometimes have the reputation as being deal killers because they are paid to help their clients avoid trouble and make the situation as advantageous to their clients as possible. The seller’s attorney may advise the seller that the terms proposed by the buyer are unreasonable, while the buyer’s attorney may advise the buyer that the terms proposed by the seller are unreasonable. In a situation where multiple advisors are involved and each side’s attorneys and CPAs are advising their clients to do something different, it pays to listen to an experienced third party on what is typical and what is not. Advantage Commercial Brokers have extensive experience in complex transactions, and can offer a third-party, big-picture perspective to help the parties get past an impasse.
Negotiation Tip 4: Know when it is appropriate not to negotiate. Occasionally, buyers get the idea that everything is negotiable. For example, the seller currently has a five-year lease with the landlord. As part of buying the business, the buyer would assume the seller’s lease and become the new tenant after closing. Inexperienced buyers may approach the landlord with the intent to negotiate the lease. For example, the seller is currently paying $3,000 per month in rent, and the buyer tries to negotiate the rent down. The problem with this approach is that it almost always upsets the landlord, leading to the buyer being disapproved by the landlord, therefore missing out on an opportunity to buy a great business. The brokers at Advantage Commercial Brokers are experienced in negotiations and can step in to remind the parties when it is appropriate to negotiate, and when it is not. In this instance, it is important to remind the buyer that the landlord already has an existing lease in place with the seller. In fact, the seller is contracted to pay the landlord $3,000 per month for the remaining time on the five-year lease. By taking no action, the landlord’s default position is to receive $3,000 per month. In other words, the landlord has no incentive to assign the lease to the buyer. Asking the landlord to assign the lease is extra work for the landlord. The best scenario one can hope for is that the landlord takes the time to screen the buyer, incurs the legal expense to draft the lease assignment, and offers the buyer the same lease terms currently offered to the seller who has years of relationship with the landlord. It is not uncommon for the landlord to raise the rents on the buyer. Thinking that the landlord would lower the rent for the buyer when the landlord already has an existing lease in place with the seller is unrealistic and a strategy that is likely to backfire.
Buying and selling a business is a complex endeavor with many moving parts, and opportunities to negotiate may arise at any time. It is important to have an experienced business broker in Las Vegas who can advise the parties when to negotiate, when not to negotiate, and whether the proposed terms are reasonable or out of left field. For a consultation with Advantage Commercial Brokers, please contact us below.
Aaron Muller, President of Advantage Commercial Brokers, has personally sold over 200 companies for his clients as a business broker. Recognized as an Industry Expert by the Business Brokerage Press, Aaron has over 20 years of experience selling companies with sale prices ranging from $100,000 to over $50 million. Aaron is an Inc. 500 entrepreneur, having built one of America’s fastest growing private companies. Aaron owns multiple companies today, and is the #1 international bestselling author of The Lifestyle Business Owner: How to Buy a Business, Grow Your Profits, and Make It Run Without You, available on Amazon in Kindle, audiobook, and paperback. Contact Aaron at (702) 829-6373 or aaron@acbrokersinc.com for a confidential, complimentary consultation for business sellers in the Las Vegas area.
