How to Negotiate a Purchase Price for a Business

As usual in the business purchase process, emotions play a huge role in negotiating a purchase price. Sellers are selling their babies and need emotional comfort and conviction that they are not giving them away. Frequently, they discuss the offered price with their accountants and in most cases accountants will not push in the direction of accepting the offered price. While accountants starve to provide an honest professional advice in their clients’ best interest, they have much more to lose than gain from a potential sale of the business. They will probably lose the account after the sale since most buyers will bring their own accountants after the purchase. Buyers must understand that pushing too hard to reduce the purchase price is generally not the best strategy to purchase a business and make it successful. While a seller might accept a price he is unhappy with, he will probably not fully collaborate in the due diligence and/or transition period.

First, in most cases goodwill represents a big chunk of the purchase price of a small/medium size business. This goodwill is built on the relationships between the seller and his/her customers, employees, suppliers, etc. An unhappy seller will not make his/her best efforts to help in transferring these relationships to the buyer. As a result the new buyer will lose a lot of the goodwill he paid for. Second, a seller not fully satisfied with the purchase price he negotiated will likely experience the seller’s remorse during the sale of the business. At some point, he/she might stop collaborating and/or put an end to the sale. This often results in a huge waste of time and loss in accounting and lawyer fees for the buyer.

A business buyer should pay attention to the seller’s emotions during negotiation. If the seller seems too attached to the purchase price he/she is asking for, then the buyer should look for opportunities for negotiation other than the purchase price. Terms or the transition period length are other possible points to negotiate. If the asked price seems too high then the best option might be simply to walk away from the deal.

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Omar Kettani

I am a business broker in Toronto. I am specialized in selling businesses with less than $10 million in value. I have a master of Engineering from a top-notch French Engineering school and an MBA from the prestigious Richard Ivey Business school in the University of Western Ontario where I specialized in entrepreneurial finance. I have a long experience in banking, business ownership, marketing and finance. I dedicate my career to helping small and middle size business owners sell their businesses to the right buyers.

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