How to Negotiate Optimal Terms for the Sale of a Company
Negotiation is a process that most of us have encountered. Some experience it only while on vacation in Turkey at a market or when purchasing used items online, while others build their entire careers on it. It can be likened to a passionate dance filled with emotions, where every step matters. But how can one avoid mistakes and not stumble during this dance? That is exactly what we will discuss today.
Negotiation in the sale of a company is similar to other business transactions, but its specifics depend on the size of the company, its market position, and the nature of the industry in which it operates. Therefore, we have divided the tips into two categories. General advice helps improve negotiation skills and highlights key aspects that deserve attention. Specific tips are based on our experiences and focus on particular risks and situations that may arise during the sale of a company.
General Advice
Define Your Negotiation Strategy and Goals
Every negotiator enters negotiations with a clear goal, but few are prepared and understand multiple variants of a potentially acceptable negotiation outcome. What offer is still acceptable to you? What is your best alternative if an agreement is not reached? What else are you willing to offer? In what areas are you willing to concede? These questions are certainly worth considering before starting negotiations, and you should enter negotiations with prepared alternatives that you are willing to accept while adequately fulfilling your established goals.
Thorough Preparation as the Foundation of Success
Thorough preparation is key to successful negotiation. Gather as much information as possible about your company, its current market position and future predictions, and especially about the other party. If your company has certain shortcomings or discrepancies, be prepared for the other party to ask about them and prepare a response that satisfies the potential buyer. Prepare arguments, scenarios, and solution alternatives. The better prepared you are, the less room you leave for uncertainty and improvisation. This will also help you feel more confident, thereby fostering greater trust.How to Prepare Your Company for Investor Entry.
Negotiation is Not a Competition, but the Search for an Optimal Agreement (WIN-WIN Situation)
It has long been said that the best deal is one where both parties are satisfied. This understanding persists, and it remains true that ideal negotiation should not be a competition to see who will be the winner and who the loser, but rather an agreement aimed at minimizing individual losses and maximizing individual gains.
But how is it possible to gain more by giving more to the other party? It’s all about the interplay of positions and interests. Positions are what we present outwardly; it’s what we bring to the negotiation, for example, that we want to sell the company. Interests, however, are what lies behind the scenes and can be much more complicated. Do we want to sell the company because we have another project underway and no longer have time for it? Do we simply want to maximize the profit from the sale, or do we also care about what happens to the company after the sale? If, during the negotiation process, one can glimpse into the interests of the other party and understand them, achieving a WIN-WIN situation is more than likely. Not only will you feel better about the entire negotiation, but it will also be faster, more constructive, and the agreement will be more stable.
Be Creative
Negotiating the sale of a company is not just about price, payment method, and transaction date. Often, success goes to those who offer unexpected but necessary solutions for the situation at hand. Therefore, do not hesitate to think outside the box; get to know who you are negotiating with, as what may seem unimportant to you might be perceived differently by the other party – even seemingly insignificant details can make a difference.
More Topics, More Agreements, Higher Chances of Reaching an Agreement
If negotiations focus solely on one point, it can be very difficult to find a compromise, as both parties will concentrate only on this one issue, which can cause more harm than good. By opening up more topics, you create space for mutual concessions and flexible solutions. Agreement on several, even less significant points facilitates the creation of a compromise on the remaining topics under discussion. Since other points have already been resolved, it becomes easier to find a way to resolve other, perhaps more significant areas. This also creates a sense of greater harmony and understanding, which helps in building mutual relationships for the future.
Speak Less, Listen More
Experienced negotiators ask more questions and listen more than they speak. Ask questions, inquire, and absorb information that you can later use during negotiations. The most important focus should be on capturing the interests of the other party, which we mentioned earlier. Understanding these interests not only helps us comprehend the other party but also allows us to focus on fulfilling them in a way that is least costly for you, thus achieving the best conditions.
Specific Tips
Longer Stay After Sale Can Be Disadvantageous
One of the key points in selling a company is the duration for which the former owner will remain in the company, if the parties agree on this. Of course, it is possible to sell the company and subsequently not be involved in it at all. An experienced investor can usually take control of the company within a timeframe of 6 to 12 months.
After the sale, the new owner may change the strategy, structure, and personnel. This can be frustrating for the former owner and may lead to conflicts. A longer stay in the company often means limited opportunities to pursue new ventures and is associated with the necessity of adjusting to a new position as an employee who must report to superiors, without any control over the company.
If a higher purchase price is conditioned on a longer tenure in the company, it is usually more beneficial to accept a lower price and dedicate time to something new.
Do Not Succumb to Pressure
As mentioned in the article Common Mistakes in Selling a Company, we noted that a medium-sized sale takes about 6 months. If a buyer is in a hurry, pushing for a quick transaction and claiming that if you don’t sell now, you will never have another chance, be cautious. This is likely a negotiation tactic aimed at securing better terms for them at your expense.
Negotiation may seem simple at first glance, but it is a complex process with many factors to consider. If you are unsure that you can negotiate optimal terms or need to fine-tune the details, our advisors are here to assist you!