Guide to Negotiating Tactics

How important are negotiating skills during the sales process? 

High-level negotiating skills are not as crucial as you might think. And that’s good news for those of us not named Henry Kissinger, the former U.S. Secretary of State who’s widely considered one of the greatest negotiators in history.

You’re not entirely off the hook, however. What you may lack in negotiating prowess needs to be made up for in preparation and positioning. 

That means anticipating and resolving any adverse issues before the buyer beats you to the punch. It means avoiding any appearance of desperation. It means entertaining multiple potential buyers. It means maintaining emotional objectivity.

The section that follows addresses all of this and more, including:

  • What you can do before negotiations begin to improve your negotiating posture.
  • When most transactions die and how you can prevent your deal from dying.
  • Why negotiating skills are overrated.
  • The key to negotiating (hint: it has nothing to do with negotiating).
  • How to maintain your cool during negotiations.
  • Why you should focus on running your business instead of negotiating.
  • The number one tactic sophisticated buyers use to drive the price down and how to combat it.
  • What you can do to motivate the buyer to speed up the due diligence process.

Since preparation is key, let’s start preparing…

How to Maximize Negotiating Posture

Ideally, you will want to anticipate and resolve any issues before a buyer discovers them. Put yourself in the buyer’s shoes and assess your business as early in the sales process as possible by performing due diligence on your own business. 

While this is optimally done just before putting your business on the market, it’s never too late to do this. You can even conduct pre-sale due diligence if your business is already on the market. If you haven’t already done so, make this a priority. Have your financials reviewed and in order, and retain a third party to perform legal and operational due diligence on your business as well.

Many business sales fall apart during the due diligence process when issues are discovered. If the buyer discovers problems that weren’t disclosed, you will lose your negotiating posture and will likely have to concede to a price decrease. Make no mistake about it. Each item the buyer finds fault with during due diligence enables them to claw back at the purchase price, if they don’t abandon the transaction altogether. 

Your goal is not only to sell your business and move on to the next phase of your life but to receive top dollar for your business. By conducting pre-sale due diligence, you help ensure that you maintain your negotiating posture throughout the sales process.

Assess your business as early in the sales process as possible by performing due diligence on your own business.

The Importance of Negotiating Position

The key to positioning is wanting to sell but not having to sell.

Negotiating skills are overrated. At the same time, positioning is underrated or forgotten altogether.

The key to negotiating is positioning. When you’re in the market for a new car, is it easier to negotiate the purchase when you desperately need a vehicle or when you couldn’t care less if you walk off the lot with a car? Avoid desperation – or the appearance of desperation – at all costs. 

Here are some scenarios that will strengthen your position:

  • The more options you have, the stronger your position will be. 
  • The more buyers interested in your business, the stronger your position will be. 
  • The better your business is performing, the less desperate you will be to sell. 
  • The more negotiations you are involved in, the stronger your position will be. 
  • The less emotional attachment you have to the idea of selling your business, the stronger your position will be. 

By creating as many options as possible, you will put yourself in the ideal negotiating position. 

Once you have created one or more of these options, you must subtly communicate to the buyer that you are negotiating from a strong position. Deal with buyers in an interested, professional, but somewhat dispassionate tone. Communicate to the buyer that you’re prepared and motivated but not dependent on the outcome of the sale. Convey that you love what you do, but it’s best for you to move on now. In essence, you should send a message to the buyer that you’re motivated to sell but not desperate.

Maintain Emotional Objectivity

Stay calm and collected throughout the process. Buyers will become nervous if you lose your cool. If an exchange becomes heated, and it will, wind down the discussion and ask to continue at a later date. Otherwise, do your best to remain emotionally objective throughout the process.

Here are some tips for maintaining emotional objectivity:

  • Use a third party, such as an intermediary or broker, as a buffer between you and the buyer.
  • Don’t be dependent on the outcome. Don’t spend the money before you receive it or make elaborate plans until you complete the closing. Be aware that fully half of accepted offers don’t close. Assume your deal won’t go through.
  • Keep your interest and focus on the business by maintaining or increasing your revenues. Doing so will increase the value of your business and put you in a stronger negotiating position.

Many arbitrators recommend ploys or other tricks when negotiating. These may work, but there are risks. The best situation is always an actual position, as opposed to a manufactured or fabricated one.

Focus on Running Your Business

The number one mistake sellers make when they accept an offer is to get excited to the point where they lose focus on their business. They may not realize that many, if not most, LOIs don’t make it to the closing table, even after they’re signed. If you want to close the transaction, focus on running your business throughout the due diligence process until the closing.

If revenues slip during the process, expect the buyer to negotiate a lower price. If, on the other hand, revenues increase during the process, you can expect to lock in your negotiating position.

Keep your business on the market until the day of the closing.

Keep Your Business on the Market

Keep your business on the market until you sign the documents at the closing table and the money clears. Note that this isn’t possible in mid-market deals where nearly all sophisticated buyers, such as companies and private equity groups, require exclusivity once you accept a letter of intent. In these cases, negotiate the shortest possible exclusivity period.

For smaller businesses, keep your business on the market until the day of the closing. Doing so helps you maintain your negotiating position. Additionally, continue negotiating with other buyers throughout the process, so you always have a backup in place.

Avoid Deal Fatigue

Avoid deal fatigue by developing options and maintaining your emotional objectivity. Sophisticated buyers are aware of the natural tendency of business owners to experience fatigue as the process wears on. They may take advantage of this by drawing out the process and nibbling at the last minute. The most common way to avoid this, again, is through positioning. Always have other options available in case the buyer attempts to renegotiate the price.

The best option for avoiding deal fatigue is preparation – by preparing your business for sale, you minimize the chance a buyer will discover a material fact they can use against you during the due diligence process.

Be Humble 

Humility goes a long way in a transaction. Price is inversely related to risk. The lower the risk, the higher the price. Who do you trust more: a pompous, arrogant person or a humble individual? The more humility you show throughout the process, the less likely the buyer will go to extremes during due diligence.

The best way to demonstrate humility is when you’re communicating the prospects of your business to the buyer. Always strive to be humble and conservative when sharing any subjective information.

Listen Before Speaking

Many roadblocks in negotiations can be avoided by implementing basic communication skills such as listening and clearly making your points. I recommend reading Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher and William Ury (Penguin Publishing, 2011).

Two tips for maintaining clear communications:

  • Listen to the buyer’s point in full before responding. 
  • If the buyer attempts to dig in on a point, find out what their true concern is.
Trust is critical to successfully selling your business, and the easiest way for you to build trust is to be honest in all your dealings with buyers.