Negotiation tips, strategies and pitfalls for first-time business sellers

For owners seeking to sell a business for the first time, getting it to the point where its value is maximised and it is fully transferable is the most important process. However, this is not where the hard work ends.

The process of preparing a business for sale arguably culminates in entering negotiations with potential buyers. This is the stage where you demonstrate the improvements and optimisations that have been made and assert how the business warrants its valuation.

For first time sellers, negotiations are bound to be daunting, possibly far more so than the process of actually preparing the business for sale and ultimately handing it over to a new owner. Many sellers may even view negotiations as a make-or-break point. The point at which the three to five year pre-sale process either pays off or doesn’t.

While there’s no denying that negotiations are a pivotal stage of the process of selling a business and crucial for a seller’s efforts to achieve their desired valuation, approaching them with trepidation, or even fear, will serve absolutely no benefit.

By the same token, it is vital not to approach them too lightly, fail to prepare effectively or assume that the work done in the pre-sale process speaks for itself and will guarantee a strong valuation.

Ultimately, negotiations are a balancing act – both in terms of a balanced approach (confident and assertive, yet professional and collaborative) and in terms of the balance of negotiations themselves (not imposing yourself in a domineering way while not allowing a buyer to dictate proceedings; the balance of give and take that often defines successful negotiations).

In this analysis, we outline some of the top tips and key strategies that first time sellers can use while preparing for and conducting negotiations, whilst also examining some of the common pitfalls to avoid.

Define your valuation... and your “walk-away” number
Once the business is fully prepared for sale, it is time to get a firm valuation which you can set as your benchmark for negotiations. A professional business valuer can help to calculate an accurate valuation for the business, using either an asset-based, income-based or market-based model.

This valuation may not prove to be your ultimate asking price, but it will serve as a valuable guide for deciding on the ideal purchase price you would like to achieve or an acceptable price range that you would consider.

Perhaps more importantly, this can help you to determine your minimum acceptable price and the figure at which you would walk away from negotiations. While there will usually be scope for negotiation, even if a buyer starts below your minimum acceptable price, a walk-away number is a figure so low that it indicates that the buyer is either unserious about the acquisition or has drastically undervalued your company.

A valuation, ideal purchase price, acceptable purchase price range, minimum acceptable price and walk-away number form crucial anchors that you shouldn’t enter negotiations without.

Additionally, without being overly rigid and shutting off potential avenues for closing a good deal, you should also seek to establish some non-negotiables on deal terms, such as whether you would consider staying for an extended handover period or what kind of performance metrics or payment terms are acceptable in an earnout.

Prepare to “sell” the business
The most fundamental step ahead of negotiations is to ensure that preparations are thorough, that you are ready to present the case for your business and that you can answer any queries they may have about the company. A solid business case will be vital in demonstrating the value of your business, so take the time to prepare the relevant materials.

This should include: financial documents covering at least the past three years (ideally, showing a trend of profit and/or revenue growth); a “growth story”, highlighting growth strategies the business has undertaken, recent growth and a plan for future growth; and a transition plan highlighting how ownership of the business will be transferred.

As well as showing the credibility of your business and its growth strategy, documents such as strong annual statements, a quality of earnings report or detailed growth projections, will also quickly help to reduce a buyer’s leverage as they attempt to lower the valuation during negotiations.

Beyond solid financials and growth trajectories, it will also be important to be able to highlight the steps that have been taken to prepare the business for a change in ownership, including owner decentralisation, fully documented, repeatable systems and processes and recurring revenue models.

Research potential buyers
Due diligence is a term often used to refer exclusively to buyer-side research on a target company, but it’s not a one-way street and vendors can gain a great deal by doing some research of their own prior to negotiations.

Understanding what a buyer’s motivation in pursuing the acquisition and their ultimate goals can be crucial to effectively selling the business to them and convincing them that it is a high value proposition that is worth a considerable sum.

Of course, negotiations can be used to figure out specifics, but sellers can get ahead by doing some basic research beforehand and finding out a few key facts about any interested parties.

Fundamentally, sellers should seek to gauge what type of buyer they are dealing with, as this will provide a key insight into their motivations. Broadly speaking, buyers can be split into three distinct types: strategic buyers; financial buyers; individual buyers.

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Understand deal structures
In such a difficult M&A environment for both buyers and sellers, both parties have had to become increasingly creative over recent years in order to ensure that deals are closed successfully and don’t flounder at the crucial moment.

This means that deals in which a buyer swoops in, pays the full consideration for the business upfront and takes over full ownership straight away with no strings attached are increasingly rare.

Alternative structures are more important than ever in facilitating deals and that means that owners should familiarise themselves with the different kinds of deal structures that buyers may seek to use. This will be vital to understanding how the deal will work, exit timeframe and the financial composition of the transaction.

Different types of buyers may seek to use different deal structures in order to suit their specific needs. An individual buyer may look to use seller financing and/or spread payments out over a significant period of time post-deal. Whereas strategic buyers may look to use an earn-out structure that enables them to make a significant portion of the consideration contingent on the business’ post-sale performance.

Understanding the various structures that buyers might favour will help an owner to visualise what sort of structures would work best for them and, subsequently, enable them to set boundaries or identify areas in which they can accommodate the buyer’s needs.

Utilise professional expertise
While you should of course be the driving force behind your own sale process, this does not mean shouldering the burden alone and failing to tap into expertise when appropriate. As mentioned earlier, a professional valuer can be a great help in calculating an accurate valuation and helping you set your ideal purchase price, minimum acceptable price and so on.

Beyond this, experienced M&A advisers or business brokers can also help you with marketing your business for sale, researching and vetting buyers, insights into buyer motivations and advice on deal structure. Maybe most importantly for first-time sellers, M&A advisers can coach you through the process of negotiation itself, from how to approach initial talks to spotting traps that buyers may be trying to set up and to helping you to keep your emotions in check during tense negotiations.

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Create competitive tension
Some first-time sellers likely envision their exit process as a smooth transition in which they negotiate with a single buyer and quickly close a profitable transaction. In reality, business sales are not like this and owners need to take steps to maximise value and gain leverage where they can – including during the negotiation period.

Perhaps the best way to increase a company’s valuation and gain leverage in negotiations is to increase competition during the bidding process. That means creating tension by canvassing a number of potential bidders, rather than focusing on just one.

If there is a single buyer interested in your company, then the negotiation process will certainly be less time consuming, but all the leverage will be on their side. After all, if they walk away, you’re back to square one.

However, if there are, say, three or four potential buyers vying for pole position, then all of the leverage is suddenly with the seller. For instance, should one bidder wish to drive down the purchase price, then you have back up options enabling you to either remind them that they risk missing out or to walk away from the negotiating table.

In order to create a scenario in which you have a number of potential bidders, you or your broker should seek to quietly canvas six to ten different buyers early on in the process and cultivate relationships over time.
This may seem like simply adding massively to your workload for the sake of a negotiating strategy, but it will pay off in your final purchase price.

Must-do's: Mastering the art of negotiations
Use silences and listen – Many first-time business sellers make the mistake of feeling like they need to dominate the conversation throughout negotiations – perhaps thinking that this will put them in control of the process.

Some may even feel that they need to keep talking due to finding silences too awkward. However, silence can be a valuable tool. A strategic silence will often prompt a buyer to talk in order to fill it. At this point, they may reveal their true thoughts or objectives, something you can either use to give yourself greater leverage or to tailor the deal to make it more favourable to them.

Manage emotions and stay objective – Particularly for founder owners, selling a business that you’ve built from the ground up can be highly emotional. Sellers will often seek to test this in order to gauge your emotional readiness to sell, or even to gain leverage.

In order to keep the process professional and remain in control, managing and controlling your emotions is a must. This can be challenging, especially if a buyer is questioning your life’s work, so practice emotional control and prepare to defend and showcase your business through objective facts.

Use tactical empathy – Tactical empathy is a key negotiation tip from American businessman and former FBI hostage negotiator Chris Voss. Instead of getting into fruitless confrontations over differences with a buyer, phrase your responses and objections in a way that aligns with their interests.

For Voss, this is best utilised by labelling emotions. For example, if a buyer is demanding you stay on for a lengthy handover period that clashes with your own objectives, you can simply state: “It sounds like you're concerned about continuity.”

As well as providing the space for you to then stay silent and await their response, this also forces the buyer to consider and confront something they may not have realised previously and to begin thinking about sustainable solutions to the issue at hand.

Another powerful tool that Voss recommends is the question: “How am I supposed to do that?” Voss described this simple phrase as one that can “completely transform your negotiation power”.

Again, if a buyer is making unreasonable demands, this simple question can force them to consider what they are actually asking of you, while turning it into a problem that you can both solve together. The key: collaboration, not confrontation.

Give and take – A key part of successful negotiating is remaining on even footing throughout. While a certain degree of flexibility is, of course, often necessary during deal talks, making too many concessions to what the buyer wants can understandably shift the power balance and weaken your position.

The answer here is not to start flatly denying anything the seller is looking to implement, but ensuring that for anything you give away you get something in return. Does the buyer want to reduce the earnout consideration triggered by a 10 per cent growth in revenue a year after closing? Fine, that can work, but maybe the growth margin that triggers the payment will have to drop to 7 per cent to accommodate it.

As well as continuing the collaborative nature of problem solving while still pushing for your needs, this will also ensure that the power balance doesn't tip towards the buyer and that you stay on even footing throughout.

Walk away if you must – Negotiations can wear you down and, after a while you may want it all to just be over with. If you’re becoming fatigued with a process that is dragging on without delivering the returns you want, a buyer may pick up on this and seek to take advantage by driving home a deal on terms that are extremely favourable for them, but less so for you.

However, walking away is always an option and is always preferable to agreeing to a deal that you are not comfortable with. This highlights the importance of setting your non-negotiables early, to avoid getting dragged into interminable negotiations with the wrong buyer and ultimately acquiescing to a poor deal, as well as the value of having numerous potential bidders lined up, so you always have alternative options.

Don’ts: Avoiding negotiation pitfalls
Don't let the buyer control the process – Remain in control of the negotiation process by setting your non-negotiables out clearly in your head, not ceding too much ground to a buyer when they are making demands and setting your own timeline for how the deal progresses.

After all, it’s your business to sell and you should only do so when you are fully certain that the conditions of the deal are right. If you allow a buyer to dictate the terms of the deal, set the timeline, milestones and expectations and grant them their demands without getting anything in return, then the buyer is firmly in control and the final deal will reflect that.

Don't fail to prepare – Fail to prepare, prepare to fail. The old saying holds true for M&A negotiations, where a failure to prepare for talks can instantly kill a deal or quickly hand all the leverage to a potential buyer.

Ensure that you’ve done your research and due diligence and that your financials, contracts, tax filings, transition plans, growth projections and other materials are all ready and organised.

Don’t be inflexible – Again, while holding your ground and pursuing your own interests is vital, absolute inflexibility is a guaranteed deal killer. After all, what self-respecting buyer is going to proceed with a deal where none of their conditions are met?

Set your non-negotiables and your ideal structure and price, by all means, but also recognise that there has to be some degree of wiggle room on things such as price, deal terms and the transition period. Remember, negotiations are about collaboration, not confrontation.

Don’t be overawed – Negotiations are likely to be daunting for a first-time seller, particularly if they are dealing with an experienced buyer. However, going into negotiations with a negative mindset and with too much reverence for the person across the table will only result in an unfavourable deal for you.

Without being arrogant or inflexible, make sure you are confident, assertive and, most importantly, able to meet the buyer on equal footing. This will earn their respect quickly and establish a tone of professional, collaborative negotiation.

Don’t agree to unfavourable terms – Being flexible and collaborative does not mean you should agree to terms that are overly unfavourable to you, that shift risk back onto you or that tie your return too heavily into the future performance of the business.

Tools such as earnouts and seller financing are legitimate options that can be incredibly useful in facilitating a deal that might otherwise be too difficult, but they can also be used by crafty buyers to create terms that are highly favourable to them, while dumping risk or responsibility onto the outgoing owner.

To avoid this scenario, set clear non-negotiables around any post-deal involvement in the business and ensure that any earn-outs used do not make too large a portion of the consideration contingent on future performance. In the event of contingent payments, also seek to ensure that the performance-related triggers for activating them are not overly ambitious.

If a buyer is genuinely concerned about the handover period or the future performance of the business, then you should be prepared with detailed future projections and growth avenues and a comprehensive transition plan.

Don’t fall for retrading – A common tactic among unscrupulous buyers is retrading - sometimes referred to as “price-chipping”. This is where, after agreeing to deal terms, they subsequently come back and seek to renegotiate on better terms for them.

Chris Voss explains: “Two days before close, they’ll call and say: ‘We found a few issues. Now it’s $7.5 million, not $10 million. They’re betting you’re too emotionally committed to walk away.”

To avoid getting trapped in such a scenario, ensure that you maintain backup buyers – even at a late stage of negotiations – to provide leverage and build contractual penalties or the right to walk away into the letter of intent.

If a buyer is genuinely concerned about something, then using tactical empathy and collaborative language can help to set their mind at ease and create a pathway for solving the issue and facilitating the deal.

Should you name your price or wait for the buyer to make the first pricing move? Are there particular situations where one or another apply? To read our special section that addresses this question, please join BSR.




There’s no doubt that selling your first business is one of the most momentous things you will do across your career (potentially in your life) and it’s natural to approach the process with trepidation, especially after all the hard work that has gone into getting the business ready.

However, this preparation should instil you with confidence in the value of your business, not fear that it might have been in vain. If you approach negotiations with the same thoroughness, research and planning that has informed the pre-sale preparation process thus far, then you will find yourself in a strong position to secure a high-value sale.

While it’s true that there are often dark arts at play in M&A negotiations, it’s important to avoid confrontation or the “poker game” mindset. Instead, remain objective, calm and in control, remember to frame any issues as collaborative problems and make sure that, while giving concessions, you are always acting in your own best interests at the same time.

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