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How to Negotiate the Purchase Price of a Business

Business is all about negotiation and negotiation is all about harnessing as much information as you can and using that information to strike a deal. As the seller, you want the most money possible from the sale. As the buyer, you want a fair price and a business that will provide you with future income. It can be a bit tricky, but if you know some proper techniques, it can be a manageable endeavor.

Research the business' market. Look at the market that the business is in and determine how healthy that market is and how profitable that market is likely to be in the future. These factors will affect the price of the sale.

Research the other party. Next, you need to amass as much information as you can about the other party. If you are the buyer, find out why the seller is selling the business. Likewise, if you are the seller, determine what makes buying the business so lucrative. Delve into the financial health of the other party and other investments the other party has made.

Open the negotiation by letting the other party make the first offer. At this point, you should know the maximum amount you are willing to spend--or the minimum amount that you are willing to take--but you may not know where the other party is at. Have the other party make the first offer and you can gauge the amount of "wiggle" room that you have.

Get your priorities straight. You will have different priorities depending on whether you are the buyer or the seller. Before the negotiation, map out exactly what you want to accomplish and how you intend on getting it.

Let whatever you disagree on dictate the price. For instance, if a seller won't provide a non-compete agreement, factor that into how much you will be willing to pay--lower now, since the seller won't budge. Work back and forth until you both settle on an agreeable price. If one party won't budge, walk away from the deal.

Work through the details of the sale and determine what you both agree on. A business purchase involves many factors, including various warranties from the parties and other promises. Each of these will affect the price. Determine what you agree on before moving on.

Difficulty: Challenging

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