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Buying a business for MSPs. Chapter 7. Negotiation and offer, Part C. When speaking with the seller, negotiation isn’t conflict. Try and avoid thinking in terms of win and lose, and instead think in terms of win-win. Use collaborative and positive words like agreement. brainstorming, collaboration, synergy, alliance, teamwork, cooperation, mutual, us, we, our, join, play, ideas, fun.

Conversely, avoid antagonistic words like accept or reject, win/lose, buyout, takeover, etc. Listen to the seller’s needs, ask open-ended questions, watch their body language. When you ask a question met with emotion, silence or awkwardness, back off for a bit. If necessary, go back later, after a day or so. But don’t give up, keep trying. Make sure you understand the root of any issues. It’s important to keep in mind that somewhere, their business will have flaws.

Weaknesses in the seller are reflected in their business. Don’t criticise. It’s their baby and they will most certainly have strong emotional ties and any perceived attacks or criticism will likely to be counterproductive. Choose your words carefully and frame things so as not to appear to be a criticism of their character. Address and highlight any problems you uncover in the first person and don’t apportion blame or criticise the owner. For example, The management accounts are terrible could well be considered antagonising, whereas If full management accounts were available, it would help us both, may prove less jarring.

Once you have uncovered as much information as you can about the business in order to make a valuation for yourself, you’ll be in a position to negotiate the price and the terms and, if all goes well, make an offer. Obviously, any offer you will make will be subject to your due diligence process. This is coming next. As a tip, remove emotions from all your considerations. it’s easy to get too attached to a deal. Have a financial framework in place you stick to and if the numbers don’t stack, walk away. A full treaty is on negotiation is outside the scope of this text, so we’ve included a number of essentials to consider.

The starting point is do your homework. Know yourself, know them, know the business and know the market. That’s been borrowed a little from The Art of War. Whilst I’m not advocating being combative at all, quite the opposite, Certainly knowing the terrain of the business and the environment, the strengths and weaknesses within yourself and that of the other person can prove invaluable. Find out what they want. Ask open-ended questions. There’s what they tell you, then there’s what they want. Then there’s what they really, really want. Understand as much as you can before your meeting and do your research. Social media, websites, their own website, background reading, asking other people. Clearly, we’re trying to establish as much as we can about the business, the vendor, the environment, etc. Yet it can be easy to overlook the fact that we should know ourselves. That is to say, we need to know our own strengths and weaknesses, what we’re prepared to do, and, more importantly, we need to know what we’re not prepared to do. Knowing our starting and finishing points are vital. How many people visit an auction and end up paying way more than they’d intended to? What are your best alternatives to what’s being offered? Again, simply knowing that you have alternatives, for example, knowing other companies are for sale and their asking prices, gives you power. Come from a position of strength. Have alternatives in place, i.e. a pipeline of other deals, and understand there will always be another deal.

Communicate your strength subtly, without bravado, and avoid weak language. Don’t be afraid to ask for what you want, don’t undervalue yourself. Aim high and expect the best outcome. Be able to say no to terms you don’t like. Ultimately, be able to walk away. Remember your key bargaining chips. You are not a cooperative investor, so you offer ease of negotiation, flexibility, speed, and if you’re buying directly, you’ll save them broker fees. Inoculate the vendor. In the first instance, the vendor has the power to simply not sell their business to you, so you must demonstrate utmost respect and make them like you. However, at some points during the buying process, it’s very likely that patients will get frayed and emotions will run high, and things can be said in the heat of the moment. This is common, but you don’t want to get derailed, so you need to take the lead and explain upfront that there will be challenges and perhaps even arguments. It’s part and parcel of it all, so make sure they’re prepared for the rollercoaster of dealing with you. Given that this whole process can be stressful, beware of emotions from the seller as well as yourself. Thus, inoculating the vendor upfront means explaining that you’ll be honest and fair and that you’ll do everything you can to make it as smooth as possible, but that sometimes things can get heated. Explain to them that it’s normal and that nothing is ever to be taken personally.

This helps them to be less likely to overreact if and when it happens. Remind them that people are emotional, and buying and selling a business is an emotive experience, and that, when they’re past the awkwardness, you can crack open a bottle of bubbly and, hopefully, celebrate together. Control the time and place. Suggest a place, ideally neutral, initially at least. Offer a few alternative time slots. Conversely, if these are offered to you, be busy, don’t appear to have an empty diary, don’t appear in a hurry, and ideally choose nice weather. It’s far more conducive to collaboration. If you must negotiate in bad weather, take a moment to discuss the bad weather before the negotiation begins, as it will help neutralise any associated bad moods and feelings. This is far more important than it sounds. Get the yeses out of the way. It’s been demonstrated that when people agree with several small things and say yes, they’re more likely to say yes later on to bigger requests. Innocuous questions such as, shall we sit here, or the weather is terrible, isn’t it, can actually be used as part of a yes set. It’s a good idea to 1st cover the small, negotiable issues where you can quickly make ground and gain small agreements. On counter offers, if you simply accept what is being offered without making a counter offer, you will have lost the potential for a better deal and, additionally, the vendor will assume they could have made a better deal for themselves, which can create remorse. Even if their offer is fantastic, at the very least, pause for a few seconds before accepting. This will let them know that you’ve mulled over their offer without instantly accepting. and during the natural tension, they may even blurt something out that works in your favour.

Meet concessions with requests. Negotiation is a tit-for-tat process. If they ask you to do something, ask for something in return. For example, if they ask you to increase your cash offer, suggest that you’ll increase your overall payment if the company performs better than promised. If you have to make concessions, make them in instalments as it has more impact. It’s been shown that people are happier to find two 10 pound notes consecutively than one 20 pound note. Don’t have a one thing mindset. Focusing just on monetary values can stifle creativity and limit good negotiation. Negotiate on other terms. List out things that are important to you and rank them in order of importance. Ask them to do the same. See where you can be flexible and trade concessions important to them and only incidental to you, and vice versa. Bundling and unbundling terms. People can be influenced by the number of items in a list. For example, a simple but often inaccurate heuristic people use when looking at similar products in a catalogue is the length of the list of features. Those items with a longer list can appear to have more value. When trading concessions as part of your negotiations, you can make one concession that you offer appear more appealing by repackaging it as more concessions in a list.

For example, if one of the elements you were offering as part of a deal to purchase a company was to retain the staff, this could be unbundled as to honour the employment contracts with existing staff, honour their holiday liabilities, honour their sickness benefits, honour their pension provisions, etc. It’s the same thing, but simply drawn out for a more perceived value. Conversely, if someone has provided a list of concessions that fall into a common topic, these can be bundled together, thus shortening the list and reducing their impact. Employ primacy and recency. Whilst you’re ideally not pitching to buy their business against other competitors, it’s helpful to remember that when people are considering multiple proposals for the same thing, they will quickly forget a lot of the information. Often, they’ll give disproportionate attention to the first thing, proposal and person, the primacy, and the last one, the recency. As an aside, it’s probably why giving someone bad news is sometimes best delivered as part of a so-called shit sandwich, which takes the format good news, bad news, good news.

MSP Marketing in Bite-Sized Bits. It’s easier than you think with MKLINK. To get more of MKLINK’s MSP MBA Marketing and IT training resources, make sure that you’ve registered for your account for free now at www..MKLINK.org.