When you’re buying a business, keeping costs low is crucial. Here’s everything you need to know about negotiating the best price for a business.
The main concern when buying a business can be summarised in one question: ‘Can I make a profit with this business?’. The cheaper your costs, the higher your profit margins, so buying a business at an affordable price is a key concern for any budding buyer. With 5.59m private enterprises in the UK, there are plenty of businesses that could go on the market at any given moment, so being purchase-ready is to your benefit.
The key to getting a reasonable price lies in negotiation – one of the most important skills in the world of business. If your negotiation skills could do with sharpening up before you buy, consult a business negotiation guide for advice, and read on for our best negotiation tips for buying a business.
- Set your limit
When buying a business, it’s easy to get carried away with the excitement of a new potential venture and end up paying more than the business is worth.
Before entering negotiations, set your absolute upper limit of the maximum you’d be willing to pay based on your research, the market, and your budget. That way, you’ll avoid paying over the odds.
- Do your homework
Before buying any business, there’s one all-important task to undertake – research, research, research. Look into any potential pitfalls of the business, and use them to your advantage in the negotiations, or re-consider whether it’s a feasible business venture for you.
The profitability of many businesses, for example, has been impacted by COVID-19, so take the market context into account when reaching a figure.
- Start low
It’s negotiation 101 that you should never start with your highest offer. Go in at the lowest reasonable offer that the seller may consider, then slowly work your way up, only raising the price by increments at a time to avoid reaching your maximum price.
- Make strategic concessions
Concessions are often a necessary part of any negotiation – but don’t let yours go unrewarded. For every concession you make, whether that be on price or another factor, make sure the seller is conceding on something of equal importance.
- Know your opposition
In order to make sure a negotiation goes your way, you need to learn the seller’s interests. If they’re under time pressure because they’re moving abroad, for example, you might be able to negotiate the price down if you promise a quick sale.
Put simply, understanding what’s driving the seller gives you more bargaining power.
- Consider other factors
Cost is obviously one of the most important factors when buying a business – but it’s not the only one. The terms of your sale matter, too. If it’s not a full sale, what stake and how much control is being transferred? Are you, as the buyer, able to veto any future transactions?
Creating better terms for you might make the price less significant. Find out the top priorities for the seller, compare them to yours, and see where you can both make concessions that don’t compromise your non-negotiables.
- Keep reactions to a minimum
A poker face isn’t only useful during card games. When entering any business negotiation, it’s important never to reveal too much, for risk of giving the opposition an upper hand.
Even if you’re happy with an offer, avoid reacting too excitedly, and continue to see if you can drive the price down further.
The bottom line
Negotiating a business purchase can be challenging, but it’s more than worth it to get the best deal for your acquisition. By making strategic concessions and keeping your cards close to your chest, you can come away from the sale with a price and set of terms that work for you.
If you’re interested in buying a business, search the market for an investment that fits your skills, experience, and budget. Remember, when it comes to creating any successful business, negotiation is key.