Business transactions, by their very nature, require compromise and negotiation on the part of both parties involved; this is especially true during the process of selling a small business. Making a counter offer is a prime example of a business act that requires finesse and nuanced communication, both of which can be difficult for a small business owner who has a strong emotional attachment to the business. Objectivity, knowledge, and a realistic point of view are the keys to crafting a counter offer that will not drive away a potential buyer.
A small business owner may easily feel slighted by a low offer from a buyer, forgetting that if their positions were reversed, a low offer is precisely how he or she would begin the bidding process as well. The owner must consider the reasons for selling the business, then determine whether he or she is truly in a position to negotiate, or if matters are dire enough to make any offer a welcome offer. Hanging on to a floundering business out of stubbornness or pride will lead to financial hardship when low offers suddenly become no offers. The appropriate counter offer will be dependent on the business’s true valuation and the owner’s genuine needs.
A knowledge of the business’s true potential comes from an evaluation of the business climate in which the company is operating. The first offer likely will not be the last offer if the economy is flourishing and the company is performing at or above expectations. In a more difficult climate, however, or in a distressed industry (e.g. print journalism), a low counter offer may be the best way to ensure a sale while not accepting a troublingly low proposal. Much as a home owner will hire a real estate agent to determine the best asking price for his property, a small business owner is best served by hiring a professional business appraiser to evaluate the accurate current worth of the business.
Making a counter offer is a pointless act if it is unrealistic. Potential buyers may sense a lack of seriousness on the part of the business owner and walk away very quickly. The appropriateness of negotiation is relative to the business’s strength in the industry (and the strength of the industry itself). There are other variables at play, such as the number of years the company has been in business and goodwill the business has earned, but one must be careful not to inflate their importance when deciding upon the amount for a counter offer.
It is not unusual for the negotiation process to volley between business owner and potential buyer for an extended amount of time, and multiple counter offers are acceptable. Each time, however, the owner must remember to have solid reasoning behind the offer being made. Compromise is an alternate solution to unproductive talks; the business owner may adjust the terms of what is being offered so that acceptance of a lower bid is justified. For example, if renovations were originally included, they may be removed from the table to accept a lower “as is” offer.
Making a counter offer is a combination of art and mathematics – the art of compromise and the mathematics of supply and demand. An experienced business broker possesses the skills to suggest an appropriate counter offer and will recognize when the best offer has been made. If you would like to learn more about how a business broker can assist you in selling your small business and make the most of the negotiation process, please contact George & Company in full confidence. We will listen to your needs and help you elicit the best possible offers from potential buyers.