A person buying or selling a business needs the temperament and correct negotiation skills to successfully close the deal.  It used to be that people think you are a good negotiator if you push for what you want and you get it.  This mentality is passé.  Today, deals are made by parties willing to find solutions to their differences.  The two parties at the negotiation table are not adversaries.  They do not attack one other, but rather they address the issues at hand. 

Here are some Business Negotiation Strategies:

1.  Prepare in advance.
Prior to beginning negotiations, study the business and the market trends through trade / industry publications, trade events and networks, and consult with those in the same line of business.  Knowing the industry statistics and analysis of the business arms you with information you might need to back up your offer or counter other proposals.  You can demonstrate that you know what you are talking about and you cannot be misled. 

2.  Listen to the other party.
Give the other party your attention and the time to say what is on the their mind.  You should refrain from making assumptions.  You can gauge the other party’s reaction and emotion to key issues so you can later respond accordingly.  The information you gather forms the basis for your questions later. 

3.  Kindness and diplomacy will go a long way.
Be genuinely kind and interested.  As the saying goes, “It is easier to attract bees with honey than with vinegar.”  Kindness is an advantage in business negotiations.  You gain credibility as well as the trust and empathy of the other party when you are reasonable, straight forward, fair and polite.

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“Have you ever dreamed of owning your business and be your own boss?” the ad said. “Report to no one and make thousands of dollars in the process? Sign up now for our exclusive business opportunity. Success guaranteed.”

There’s a hidden trend in the past 10 years or so. A trend unnoticed by the general public or the media. Unlike say, gaming or feminism, no one really made a big deal about it. But it’s a trend just as important as any others.

I am referring, of course, to none other than what I like to call the “entrepreneur fad”. Pioneered by some of the world’s best salesmen, and fanned by media praise, the world seems to have this notion that a life of entrepreneurism is the best way to live. People quit their high paying jobs to start a small business instead, students drop out of school to “sell stuff on the internet”, a stay-at-home mum joins some kind of MLM (multilevel marketing) deal… the list goes on.

Yes, some of the world’s greatest companies are founded in the garage, by dropouts. Microsoft, Apple and Dell come to mind as examples. And there’s no doubt that everyone in this world has the capability to pursue anything they want in the world – that much I agree.

But there’s one common thread among these success stories: their founders started the company after long deliberation and they work longer hours than anyone else. Most of all, they did it to pursue a dream, not because they saw some ad selling businesses with “guaranteed” success.

In this article, I’m going to reveal 10 things these business sellers won’t tell you, things they’d rather no one outside the industry knew.

1. It’s Never Going To Be Easy

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Valuing a business is a challenging aspect when buying a business.  How can you arrive at the right price for a business for sale?  Will you, the buyer, just rely on the asking price of the seller?  In most cases, the seller wants a price higher than the real price of the business because the former factors in the hard work and number of years he or she invested in the business.  It is up to you to decide if the price accurately reflects what the business is worth.  How will you arrive at a counter offer?  Here are some tips in valuing a business.

1.  You should learn how to read and understand income statements, balance sheets and other important financial records.  From the data reflected in these documents, you can follow the financial status of the business through the years.  These numbers can provide you with the basis in valuing the business.  Is the business growing?  Is it worth more now than last year or previous years?

2.  You can use the Asset Valuation method of valuing a business if you are buying a retail or a manufacturing business.  Calculate the fair market value of tangible assets such as equipment and inventory of the business, or the price to replace them.  If possible, use the replacement costs of the assets in the same or similar condition.  This method is usually used for companies losing money or with flat income.

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“Have you ever dreamed of owning your business and be your own boss?” the ad said. “Report to no one and make thousands of dollars in the process? Sign up now for our exclusive business opportunity. Success guaranteed.”

There’s a hidden trend in the past 10 years or so. A trend unnoticed by the general public or the media. Unlike say, gaming or feminism, no one really made a big deal about it. But it’s a trend just as important as any others.

I am referring, of course, to none other than what I like to call the “entrepreneur fad”. Pioneered by some of the world’s best salesmen, and fanned by media praise, the world seems to have this notion that a life of entrepreneurism is the best way to live. People quit their high paying jobs to start a small business instead, students drop out of school to “sell stuff on the internet”, a stay-at-home mum joins some kind of MLM (multilevel marketing) deal… the list goes on.

Yes, some of the world’s greatest companies are founded in the garage, by dropouts. Microsoft, Apple and Dell come to mind as examples. And there’s no doubt that everyone in this world has the capability to pursue anything they want in the world – that much I agree.

But there’s one common thread among these success stories: their founders started the company after long deliberation and they work longer hours than anyone else. Most of all, they did it to pursue a dream, not because they saw some ad selling businesses with “guaranteed” success.

In this article, I’m going to reveal 10 things these business sellers won’t tell you, things they’d rather no one outside the industry knew.

1. It’s Never Going To Be Easy

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I just had a birthday.  Yeah I know- So What….  But  celebrating a birthday when you are “Middle Age” by most definitions and or “old” by my teenage daughters definition a little introspection is done.  Fact is Im not getting any younger.  As a business broker based in Florida it also makes me think of all the business owners that are getting older and maybe are or have been ready to sell their business but the bad economy has delayed that decision. Another year passes, the “recession” is still with us and it really looks like it will be with us next year and maybe beyond.

How long can a business owner wait to sell their business?  What if this down economy last 2,5, 10 years.  I am generally an optimistic person.  I started and owned a business for 20 years and during the lean years I continued to see the glass as half full, and fought thru some difficult years and successfuly sold my business when I was ready.

I beleive there are many business owners that had planned to have exited their business by now.  Maybe they planned to sell their business and begin enjoying “that retirement thing” they have heard of, but had to delay those plans due the the reduced value of their 401k and other investments, the reduced equity in their home, and the lower revenue and profit of potentially their biggest asset- their business.  Its easy and common to say “I want to sell my business but I dont want to sell it now when my business is down”.   I understand that thought process.

But I think from here is where the thought process becomes more difficult.  Considerations should include:

• What if we remain in a prolonged recession- can I wait 3-5 plus years?
• What happens in our world of supply and demand.

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Bringing a business for sale transaction to fruition is a trying, lengthy learning venture.  You, the buyer, have to try your best to negotiate with the seller in a civil and honest atmosphere.  Pleasantness, reasonableness and fairness are needed for the process to proceed smoothly.  Once you decide to buy a business, you have to move fast or it might slip through your fingers.  You have to signify your serious intention to the owner by formalizing your bid. 

Before making a formal offer, you have to determine how much the business for sale is worth.  You do not want to pay more than its real value.  For this, you have to engage a business appraiser knowledgeable of the market trends for this particular business or industry.  A CPA or accountant should also be consulted to examine the proposed transaction from a tax perspective.  Going in on your own is not recommended.  A lawyer can draft your offer proposal in its entirety or at least review one that you have prepared.  Although the former is the better way to go, it is also the more expensive route.  However, if you have a verbal agreement with the seller on key issues and you have prepared a draft following available purchase agreement forms or templates, bringing in a lawyer later will cost you less.  Remember though to never sign a contract associated with the purchase of a business without first having this reviewed by a lawyer. 

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It is to the buyer’s advantage to understand the owner of the business for sale.  When the seller believes you are the right person to buy the business, he or she will try to make the deal happen even to the extent of structuring the terms to accommodate you.  Here are some tips on how to purport yourself to the owner of the business that you want to buy:

1.  Put yourself in the seller’s shoe.  Factor in the human element in the negotiations.

The seller may have the same level of anxiety as you do regarding the transaction.  Selling the business is a monumental emotional decision on the seller’s part.  So much is at stake – years of hard work, sacrifice and probably, all or most of the family’s fortune.  Tread with respect. 

2.  First impression is critical.

Do your homework so you are prepared for your initial face-to-face meeting.  This is like the proverbial first date or first job interview. Be on time and properly attired.  Do not be a “difficult” person.  Try to make the discussion a positive experience.

3.  Be sensitive to the owner’s apprehensions.

Gauge the seller’s reaction to key issues.  Nod every now and then and reassure the seller that you understand his or her concerns.  Do not be a cold, rigid and demanding buyer.  The seller may react negatively and throw you out, telling you not to come back.

4.  Understand where the owner is coming from.

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When buying a business, one would think that the pressure is on the seller to complete the sale. This is not the case. A seller is very selective about whom he or she will sell to. After investing many years in the business, struggling to build it up and making it profitable; the seller would want to make sure his or her “baby” will fall into good hands. As such, the pressure is on you, the buyer, to impress the seller that “You’re the one!” You have to let the seller think that you have the ability, the desire, and the commitment to buy the business and build on its success.

First impression is critical
You have to let the seller feel that you can get the deal done. During the initial stage of the business for sale process, you should factor in not just the financial aspect of the process but also the human element in the discussions.

• You must be sensitive to the concerns of the seller. Study the seller. Observe where his or her emotions lie. 
• Be careful how you probe questions and extract the information you need.  Do not be demanding.
• Let negotiations unfold naturally.
• Like in any relationship, establish trust gradually. Build a solid relationship not only with the seller but also with his or her advisers or representatives.

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The number of businesses sold in the market has reportedly grown significantly in the last quarter. Although this may be considered a positive development, this has yet to reverse the slump experienced in the past three years. Buying a business or selling a business these times where the economic conditions are still volatile demands from all parties concerned (the buyer, the seller and the business broker) to re-think their expectations. Everyone must have a firm grip of the market trends during this current unpredictable economic environment.

With many sellers wanting to sell their businesses so they can enjoy the financial rewards of their work and sacrifices or due to their desire to move on to a new venture or challenge, and the new breed of buyers caused by the high unemployment rate (as laid-off employees are now looking to buy a business as an alternative to traditional employment), one would think that the market is more liquid with many businesses sold and bought. But such is not the case.

Seeking and getting approval for capital is tough these days. Traditional lending institutions are cautious in committing to financing small and medium business acquisitions. There are people out there who want to buy a business but their dreams are not realized because of lack of capital due to difficulties in borrowing.

Those selling a business who hope to get paid full in cash are overly optimistic. Getting paid in full at once rarely happens. Usually, buyers make a down payment and pay the remainder in installments for years. The seller should be patient, flexible and creative with the terms of the transaction.

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You must avoid making these mistakes when getting a business appraised as they could cost you your business. Here are the top 7 mistakes when getting a business appraised:

1. Not considering the approaches that you can take when it comes to valuing a business – there are three approaches that you should consider and they are:

• The income approach – This approach is where the value of a business is based on the sum of the current value of likely economic benefits.
• The market approach – This approach is where the value of a business is calculated by comparing it to other similar businesses that have been sold in the area.
• The asset approach – This entails making adjustments to a business’ assets as well as liabilities when it comes to their market values.

2. Not thinking about the discounts that might be applicable – the usual discounts that can be applied when it comes to business valuations are the ones for a lack of control as well as for the lack of marketability.

3. Not knowing the standards of value – for an operating business, the value standards will most likely be one of the following:

• Fair market value – simply put, this is the price which is determined in terms of cash equivalents.
• Fair value – this is used when it comes to issues that range from dissolving marriages to nonconforming shareholder suits.
• Investment value – this is normally used for transactions when the buyer who wants to acquire the business makes a return on investment (ROI) assessment to determine the value of the business.

4. Not knowing the difference between an appraisal and a fairness opinion – an appraisal entails knowing about a business’ industry, economic conditions as well as trends, among others.

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Every business has its price. Drop the asking price enough and chances are you’ll find a buyer from somewhere, so in that sense overvaluation is the biggest obstacle to the successful sale of your business.

Obviously, you first want to maximize the value of your business. But once you’ve done everything you can to make the business as attractive a proposition as possible, you then need to set a realistic asking price.

Too often, however, entrepreneurs who are selling a business fail to set a realistic price – and they rarely go too low. In fact, California-based broker Andrew Rogerson claims: “I’ve never come across a business owner who has undervalued their business; it’s always overvalued, often quite considerably.”

To ensure you set a price that will elicit interest from the market – and this is particularly vital if you’re seeking a quick sale – it helps if you understand how overvaluation occurs. What follows are the most common reasons for inflated asking prices.

1. Emotional attachment

As Andrew Rogerson explains, “sellers sometimes think: ‘I’ve been working on this for 20 years so it must be worth a lot of money’ – but it’s really about the cash flow of the business. That comes as a shock to many business owners; they put their heart and soul into the business and think it’s worth a lot of money.”

You can never be truly objective about your business, so that’s why an impartial professional is worth hiring.

2. Valuing according to your needs

It’s not unknown for business sellers to inflate their asking price to meet their financial needs post-sale, whether to cover loan repayments and agent fees or to fund their next venture or retirement.  But a buyer isn’t interested in your finances – he or she are concerned with the profitability and potential of the asset for sale.

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Every Business Needs an Exit Strategy. Do you want to Run Your Business Forever? Do you Want to Sell your business? Do you want to leave your business to your children? Do you want to sell your business to Your Employees? Do you Just want to close your doors and Move on? How do you want to exit your business? And when? Recently a good friend of mine that is a successful business owner contacted me about the prospect of selling his business in a few years. He asked me to contact him regarding what he may want to be doing now to prepare his business for sale. He has a successful growing business, he has grown his number of employees from 10 to 75 over the last 18 months. He is effective at gaining new contracts and growing revenue, but like so many businessmen, he has never attempted to sell his business.

Normally during the startup of a new business the thought of an exit strategy is not even a consideration. Then small business owners get so involved with the day-today operation of theirbusinesses that again an exit strategy is either not even thought of or possibly just put on the back burner. Taking some time to put some thought into your exit strategy can go a long way to increasing your odds of exiting your business the way you desire to.

Planning, gaining knowledge, and preparing may be the 3 most important measures you can take when considering an effective exit strategy. If your exit strategy involves an interest in trying to successfully sell your business in several years, what sort of measures or actions should a business owner take to make this successful:

1. Make sure your financials are in order. Clean understandable Income Statements and Balance Sheets will add value to your business.
2. Systematize and document your operations and procedures.

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As a business broker I encounter business owners contemplating the sale of their business on a daily basis.  One of the most puzzling questions for these exiting owners is, “Where do I start?”

While there are a thousand things to consider when selling your business, the first and most important question to answer is, “what do I have to sell and what is it worth?”  The best way to answer this question is with a business valuation.

Think about it, how can you decide if the best move for you is to sell the business if you don’t have a firm understanding of what you’re selling and how much you can reasonably expect to gain from it?

How will you plan?  Will you have enough money to retire comfortably?  Will you maximize your purchase price or will you leave money on the table?  Is a third party sale really your best option?

Having a business valuation performed prior to making the decision to sell will provide you with both piece of mind and a baseline for evaluating potential offers.  It will allow you to formulate what your retirement looks like prior to actually being retired.  Isn’t this critical information to have BEFORE you lock yourself into a listing agreement with a business broker?

I think so.  That’s why our business exit process is divided into two completely separate stages, the valuation stage and the sales stage.  At the completion of the business valuation, you do not have to move forward with a sale.  A sale might not be your best option to accomplish your goals.  But at least you will have the information you need to make an educated decision.

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What is the Number 1 Reason I hear when speaking to Business Owners about selling their business? – Why are you looking to sell your Business? – ” Because I Am Ready”. For those of you who have owned a business for any period of time this is a response that is fairly easy to understand. I am a business broker based in Florida (and business owner) and speak to many prospective buyers and sellers of business and understanding the “Why” for both parties is so important in assisting the buyers and sellers of businesses. I really think that most people that have given a fleeting thought to buying a business believe that business owners want to sell their business and therefore something must be wrong with the business. Actually I am currently working on selling a Landscape Business in Florida. The business owner has a good quality business for sale, good cash flow, a comfortable lifestyle. He has owned the business for x years and is “ready to do something else”. He will be relocating out of state, he owns a successful business he is looking to sell. Recently we spoke about the potential purchase of another business in an unrelated field and his hesitancy about buying a business because why would someone sell a “good” business- . And this comment is coming from someone selling a “good business”. I also am currently helping an owner of a Computer Service Store For Sale whose revenues are up 30% over last year, Profits are up 20% plus and is seeking to sell his business at less than 1 times annual adjusted cash flow.

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Misconception 2. The buyer should be happy just because I am selling it to him.

Business owners invest their money, time and sweat in businesses. Sleepless nights, time away from family, no vacations – that’s what the owner gets, especially in the beginning. No wonder that all the above translates into substantial value in  business owner’s eyes. The history itself adds to the value day by day. “I built it from the ground up, I took it from $5,000 per month losses to $10,000 profit, I trained the employees, I negotiated the contracts – the buyer should be happy just because I am selling it to him…”.

Well, let’s look at it from business buyer’s prospective. Business buyers rightfully think that business financial performance is the common denominator. They don’t know how you got where you are and take your current business performance at its face value.

Lets look at the example of two similar businesses, Business A and Business B, each generating $10,000 in monthly net income for their respective owners. Business A was around for 10 years during which time the owner never had a vacation, worked 12 hours per day and defaulted on business loans twice. Business B was around for 3 years, has more employees, owner is rarely there. Although both businesses generate the same income, the perception of value for the Business A owner is greater because he invested more time and effort to get where he is, went through hardship, etc. Business B owner may be more skillful, or lucky, or organized, or had more working capital,… or all of the above. From business buyer’s stand point, Business B has greater value than Business A because it’s better organized and allows for more free time to the owner.

Business sale is performed between two equal partners: business seller and business buyer.

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You are looking to Start a Business.  You are Running a Business.  You are Buying a Business.  You are Selling a Business. What is the most important step in any one of these ventures, And no the answer is not having unlimited deep pockets. To start, run, sell,or buy a business you need to understand that business.  You need to understand not only the operational side of your business, you need to understand the financial side of your business.  I am a business broker in Florida and I help people buy and sell businesses (and current and former business owner).  This last week I completed a very busy week of helping an out of town business buyer visit several different businesses.  Our intent of visiting these multiple businesses was an effort to understand the businesses. To buy a business you have to understand the business.  A small business owner truly needs to understand the financial health of their business.

 Many, Many Many small business owners DO NOT understand the financial side of their business.  Do you feel as an entrepreneur you need to understand the difference between a debit and credit or if you buy something if it should be a capital purchase or an operating expense.  So many small business owners and entrepreneurs run their business using their gut as their guide, they can feel if their business is going good or bad.

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You are thinking about selling your business. You may have uncertainty, angst, worries, trepidation, fear, unknowns, and sleeplessness nights.  I believe you are not alone. My approach as a business broker in Florida is from a perspective of a former long term business owner.   I truly feel some of the feelings I experienced as  a business owner are very similar or the same of the business owners I work with as a business broker.  While at this stage of my professional life I am “sitting on the other side of the desk” I feel I do understand the concerns, fears, thoughts of the person on the other side of the desk.  There are many qualified experienced business brokers that are not former business owners and these quality brokers bring various valuable perspectives and experiences that benefit their clients.   My choice to pursue my “2nd career” as a business broker comes from my recognition as a business owner of the value a business broker can bring.

1. If I sell my business do I have enough to retire?
2. What will I do after I sell my business.?
3. What will happen to my employees?
4. What will I sell my business for?  Is it enough?
5. How do I handle all the “little situations” that are part of most any business prior to selling my business?

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Misconseption 1. Purchase price should at least cover what I spent on the business
Put yourself in the buyer’s shoes (I will use this phrase a lot, so get used to it). As a buyer, you’re buying a business for the income. You don’t care much how much the seller spent on it, but rather how much money it puts in the owner’s pocket. If the owner spent one dollar and the business is generating one million dollar in profit, it will be treated as a million dollar business. If the owner spent one million dollars and the business is netting one dollar, it means that the owner wasted one million dollars, regardless how beautiful it is.    

We were approached by a classic car dealer who just recently built 30,000 sq. ft. indoor showroom with body and repair shop for restoring the classics. It took him half a million to build out and another half-million to put inventory in it. Eighteen months passed by and the dealership was still losing money. The owner told me a lot about uniqueness of the business, and that nobody else in California can do the restoration work they do. Apparently there wasn’t high demand for such unique work, especially in today’s economy. Instead of generating income for its owner, this business became liability.    

We presented the owner with business valuation that included cost of inventory and modest goodwill that will be recognized by strategic buyers. Owner found another broker who promised to sell the business for $2 million – twice as much as the owner invested in it. Despite the fact that we tried to explain the impossibility of any buyer paying so much for a business that’s losing money, and would be cheaper to start from scratch, the owner decided to go with the latter broker. Unreasonable expectations superseded common sense.

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What kind of business owner do you consider yourself?  Are you a Hands on Business Owner or do you consider yourself more of a big picture operator that consistently effort yourself to avoid the minutia of the business.  I think the majority of us are a hybrid of these 2 approaches.

When running a small business, or involved with a startup business, on an almost daily basis you are faced with the question “Do I do it myself or do I hire others to do it for me?”  Most all are aware of the concept Time is Money – but like so many other business concept we all draw the line in the sand at different places.  We are not always consistent with where we draw that line, and find that that line moves as or business moves or the economic climate around our business moves.  This question can be applied from basic business task of running to the post office to mail off some stuff or calling some prospects to significant larger issues like hiring outside help to handle your marketing functions, doing my own website, or trying to do my own SEO.  

I am a business broker and I help business owners and individuals in the process of buying or selling businesses.  Selling ones business is a very significant event and very often like so many other decisions a business owner will decide to try to sell the business themselves or hire someone to help sell their business.  This decision is part of the never ending series of question a small business owner needs to answer. In my current profession as a business broker if Florida I am faced with these same similar questions on a daily basis.

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“Nothing happens in this business until somebody sells something.”  Are you a salesperson?  If you are in a small business or a startup I would be stunned if you said no.   I have  been with several companies throughout my business career, small, medium, and a large Fortune 100 company, some as an employee and some as an owner.   My role currently as a business broker is to help people with the process of buying and selling businesses.  How do you find people wanting to buy a business or sell a business – prospecting.  Whats the first thing I do when meeting this prospect – listen.  My job of working with those in the buying and selling of businesses is really really a job of listening.  I recall one of my first jobs out of college I was hired by a Fortune 100 company, and they would send all new employees off to corporate headquarters for 45 days of fairly intensive training.  Training as a salesman / woman for that company involve quite a bit of technical knowledge on their products along with sales / marketing / time management skills.  I studied the technical aspect of this product extensively.  I felt when I got in front of a prospective client I just had to let him know all I had learned about this product without really slowing down to hear what they wanted to know.  It seems a little silly to me now, but then I felt it was my job to tell them all I knew.  Today to me selling is listening to a customers needs and proposing a solution.

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