In the purchase of a business, the end result of negotiation is not winning an argument, but reaching a mutually beneficial agreement between buyer and seller.

The most common mistake people make in negotiation is thinking that their goal is to win at the expense of the other party. Adopting this win-lose approach almost always results in a failed, or less than optimal, negotiation. A win-win approach, where each party gets its needs met, is the most successful way to negotiate.

To better accomplish this end, the prudent business Buyer should understand the Seller’s position, establish a harmonious relationship with the Seller, and pave the way for negotiations which will lead to the successful purchase of a business.

Understanding the Seller's Position

The buyer should seek to understand the Seller’s position as well as those circumstances which lead to the decision to sell. This is the first step in developing a sincere respect for the Seller’s objectives, which builds a foundation for successful negotiations. A Seller's thought process toward a prospective buyer goes something like this:

“Who is this new potential owner? Does he appreciate what has gone into raising the business to its present level of development? Will he know how to treat those special customers and my employees? Will he maintain the policies, the standards and the conditions that have enabled the business to survive the hard times and continue to prosper?” And ultimately, “How will I fill my days when the business is gone, when I am no longer needed to make the day-to-day operating decisions? Am I really ready for such a lifestyle change?” With these concerns, it’s no wonder many Sellers agonize for months (or even years) before they reach the point of seriously considering a sale of the business. The Buyer who understands the Seller’s feelings and can express genuine appreciation greatly enhances the prospects of eventually reaching a successful purchase agreement.

Developing the Buyer-Seller Relationship

From the very first personal meeting with the Seller, the Buyer should begin setting the tone for a successful negotiation. This can be accomplished in several ways:

  • Establish rapport with the Seller. Indulge in some small talk, be sincere and look for common background or mutual interests. Both parties will feel more comfortable if they are communicating on the same wavelength.
  • Maintain a friendly but business-like posture. Remember, while you are assessing the Seller, his motivations, and his company -- he is forming an opinion of you, your ability to buy the company, your track record in actually running a business, and your level of interest in buying his company.
  • Show a flexible, openminded, and reasonable approach to possible scenarios of the business sale, transfer and transition.
  • A positive attitude and self confidence will go a long way in compelling the Seller to feel very comfortable with you and your ability to successfully replace him as the new owner.
  • The first meeting with the Seller is to serve these purposes; establish rapport, collect factual information about the business, and to determine if there is a sufficient level of interest to warrant continued pursuit of the business.
Guidelines for the Initial Buyer-Seller Meeting
  1. Be on time or a few minutes early. Remember, the Seller has a business to run and his meeting with you is a mutual courtesy. There is a big negative to overcome if the meeting is delayed or must be re-scheduled due to your tardiness.
  2. Provide the Seller with a resume or brief synopsis of yourself and your associates (if others are involved as co-principals). Your willingness to fully disclose your background will help foster trust and enhance the Seller’s willingness to supply you with details about himself and the operations of the business.
  3. Be complimentary. Find one or two key positive points about the business and verbally express your genuine appreciation of these attractive aspects of the business. Most Sellers are impressed with Buyers who understand what the Seller has accomplished through his business.
  4. You should not raise the issue of selling price or terms of sale at the initial meeting. The purpose of this meeting is to meet the Seller, see the business, establish rapport, gain a good understanding of the product and/or service and operations of the business to determine if there is further interest. You already know the Seller’s asking price (the listing price) and it is not productive to “put the Seller on the spot” or attempt to negotiate with the Seller. You must first carefully evaluate all the facts and be prepared to make a serious offer to purchase. Your business broker will be the middle man for further questions and presenting any offer to purchase the business.
  5. Respect confidentiality. Prior to gaining any confidential information about the company, business brokers will require you to sign a “confidentiality” / “non disclosure” agreement. This agreement does not require you to buy the business or obligate you to pay any commission or broker fees. It is intended to register you as an interested party (Buyer) and document your pledge that the information you receive about the Seller and the business will not be used for competitive purposes or revealed to any third parties. For obvious competitive reasons, some Sellers may be reluctant to openly discuss the details of such things as key employee salaries, mark-up percentages, names of customers or suppliers, technical patent information, unique operating procedures, formulas and other trade secrets. This information would be revealed to you during the due diligence period after a contract has been executed.