Striking a Deal: Negotiation Tips
Know Your Limit. As a buyer, you must know the highest amount you are willing to pay for the business before negotiations begin.
Keep communication moving. Avoid confrontational language that will shut discussions down; stick to calm, factual reasons as you negotiate back and forth.
Watch out for goodwill. When entering negotiations, it's important to understand that intangible assets can drive up the price of the business. "The more a seller can allocate to goodwill the better off he'll be for tax purposes. A buyer wants to allocate as little as possible to goodwill and as much as possible to tangible assets which depreciate at a much faster rate," states Miehls.
Be prepared to be flexible. As the buyer or seller, if you are firm on one point such as the purchase price or allocation of goodwill, then you should look for other areas where you can be flexible in order to facilitate the closing of the deal. For example, as a buyer, if you are unable to have the goodwill allocated in your favour, you may want to ask the seller to allow you to make installment payments on part of the business purchase price. Known as vendor take back, this is also effective if you don't want to finance the entire purchase through a bank. Hopefully the profitability of the business will generate enough cash for the buyer to quickly pay off this debt, explains Miehls.
Nothing is fixed until the deal is finalized. If the deal isn't working, always be willing to walk.
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