Editor's Note:   This is the 5th in a series of articles on buying a business: the financing, the negotiations, the process, and the how-to's.
 

Negotiation: The Keys to Success

by Doug Perry
Commercial Realtor ®

This is my favorite part of being a commercial realtor because I enjoy bringing the buyer and seller together for a mutually satisfying transaction. Many problems and headaches can be avoided by simply keeping a few points in mind.

When negotiating the purchase of a business or commercial real estate you need to first consider what you're trying to accomplish.

The buyer:

The buyer has been looking for a business to pour all their efforts into to make a living for the family. This is the American dream. Once you've decided on a business, the location, the rent, the terms, and found the money necessary you are ready to perform. Now we need a meeting of the minds on the price. It could simply mean the difference of the seller coming down a little and the buyer coming up a little on the price to bring the transaction together.

The seller:

Sellers have worked hard, hiring employees, paying the bills, and shouldering all of the responsibility and now they've decided to sell and do something different. The average business changes ownership every seven years. That means there are a lot of businesses that need a professional realtor who fully understands the selling of a business that will benefit both parties.

The art of negotiations in a business sale is in large part being respectful of both party's feelings. The biggest emphasis I make to a buyer is to make sure your offer is reasonable.

Most sellers will first size up the buyer thinking, "Could they run my business and make it more successful?" Then, "Is their offer fair and reasonable? It may not be what I was asking for, but is it a reasonable offer?" However, if you lowball a seller and ask things that are impractical or unreasonable, you can bet the price will not come down at all.

• For buyers and sellers: keep your focus on making a sale happen and be willing to let go of your positions on issues. This will bring the sale together much faster.
  
  
• There are times when an agreement is only a small fraction of the purchase price.
  It's a shame when one of the parties takes a position and can't free themselves of this position in order to close the transaction. What this does is brings the whole process back to square one for both buyer and seller. The anxiety of "will I ever find a buyer?" or "will I ever find what I'm looking for?" starts all over again.
  
  
• Example: a buyer offers $325,000 and the seller wants $345,000. The seller will entertain a little less but the buyer won't budge. When you do the math on a SBA loan, the payment difference per month between $325,000 and $335,000 is only $52. Yet the buyer would miss the opportunity and have to start the search all over again. On top of that, will they be able to save that $10,000 on a different location after all the lost production time in their search? Probably not.

The Final Word: Don't be over positional in your negotiations.