When negotiating selling/buying a business, both seller and buyer could end up losers
By Dave Driscoll
During my career in business, both as an owner and advisor, I have learned to keep the big picture and the road to that vision clearly top of mind in my decisions. “What is my desired outcome? What is my long-term objective? How do I get there?”
Being a professional M&A broker advisor, I interact with buyers and sellers daily. My mission is to achieve the seller’s goals when exiting their business, as well as to fulfill the buyer’s desire to own a profitable business. Balancing each parties’ interests can be challenging, especially when one party has the attitude they must “win” the contest over the other. I have seen many a party not achieve their objective -the sale or purchase of a good business – due to the must win attitude. That singular focus on winning the current “round” instead of looking at the big picture leads to the deal evaporating. Future opportunities are lost that could have benefited both parties in a more balanced negotiation.
What drove me to start my first business was a passion for what I was doing. I was selling a consumable product that my employer manufactured according to each customers’ specifications, and that customers needed to reorder repeatedly because it was a critical part of doing business. The relationship between the supplier and the customer was ongoing, offering the opportunity to build long-lasting relationships. Likewise, my vision for my future was to own a business manufacturing a consumable product that was the basis for long-term customer relationships. That was my “big picture” and the specific product mattered less to me than the framework of reoccurring revenue and connections.
Without money to purchase a business, I decided to just start my own. Initially, I brokered the consumable product through wholesale manufacturers; I was a professional salesman – a manufacturer’s representative who took title to the product I sold. When I started, I had no customers, just a vision of what I wanted my life to look like… my destination.
Working hard, seizing opportunities, responding to the pulse of the market, and expanding into manufacturing capabilities as demand for product grew, ultimately led me to living my ideal vision for my career and lifestyle. Along the way, I achieved huge successes along with major disappointments – that’s an inescapable part of being a business owner. There are no guarantees and assuming risk is the price of ownership. Ultimately, reaching my vision came from learning to succeed more often than I failed. I never kept score in some imaginary competition with others. I just kept visualizing where I wanted to be and taking logical steps in that direction.
Failing to develop a long-range vision and to keep all eyes on that destination has caused many buyers and sellers to miss their “big picture” (and big opportunities) by only focusing on winning here and now. Not compromising to a common middle ground when negotiating a business sale or purchase results from letting the ego overshadow the vision of what you are striving to achieve.
Too often, sellers and buyers are short-sighted about negotiations instead of considering how their lives will change post-sale. Both parties in a business transition need to weigh the significance of those last few dollars or percentages as it relates to their overall goals.
From the buyer’s perspective… how long will it take me to recoup the amount I give up to get the deal done? Three, six, 12 months, or longer? Under my ownership and fresh energy, is the company likely to perform better and shorten that timeframe? Does acquiring this company support my future vision of myself and my lifestyle? Is the ongoing potential outcome (and income) worth more than what I concede?
From the seller’s position… how strong is the pull from my life beyond business?™ What value do I place on time with family (grandchildren!), travel, less daily responsibility, fewer obligations, and time for volunteering and hobbies? Or maybe just the option for leisurely reading a book? Is there a different career I want to explore? Is the amount I sacrifice worth more or less than those pursuits?
Advancing toward your ambitions should be the focus for both buyer and seller, not competing for the last nickel and a tick mark in your personal win column! In pursuit of the win, you could quickly become the biggest loser.
Dave Driscoll is president of Metro Business Advisors, a mergers & acquisitions, valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at [email protected] or
(314) 303-5600. www.MetroBusinessAdvisors.com
As seen in Dave’s column St Louis Small Business Monthly