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Buying a business for MSPs. Chapter 7, Negotiation and Offer. Part A.

If your napkin valuation stacks up, then the next step is to meet the seller for a face-to-face meeting and take it to the next stage, namely to gain more information and proceed to negotiation and then potentially making an offer. As mentioned already, the key to negotiation is rapport. It’s critical to sell yourself to the seller, otherwise all bets are off. Both of you will be nervous.

You’ll have to ask lots of questions. Rapport will help you when you uncover certain truths or awkward silences. Arrange to initially meet the vendor for a tea or coffee somewhere neutral, ideally somewhere close to their business so you can go there later if things go well. Be mindful that the vendor probably won’t want any staff knowing the reason for your visit, not just yet anyway. If you can, sit at the corner of the table with them or on the same side, as if you’re both looking at a laptop. This can be more conducive to the spirit of collaboration than when you both have a large table between you, which can feel a lot more confrontational according to behaviourists.

Certainly, getting people on side helps in a literal sense when it comes to sales in other settings. When you arrive, don’t just dive straight in. Take time to warm up and use that opportunity to find out about the seller and try to establish some commonalities. Topics to include in the early conversations can be about people, places, values, likes, dislikes, challenges, and so on. Some rapport building questions. What are their interests? How did they get involved with the business? Why did you decide to work in that particular field? Are their friends and family involved? What were their original goals for the business? How have things changed? What achievements whilst running it are they most proud of? and what would they do differently? As a tip, use positive language, not negative, and avoid seller’s remorse. Later on in your conversation, you can ask more aspirational, future-pacing questions, like what would they like to do next? What’s holding them back from reaching their goals? If they don’t solve a particular problem, what kind of issues will they have moving forward? What won’t happen that they want to happen? Ask Tell me more or How so? or Please elaborate questions for any answers that would benefit from more explanation. If the business is distressed, the owner will likely feel as though they have a millstone around their neck.

They’re in survival mode and consequently not necessarily thinking about alternative solutions. Try and take them from survival thinking to possibility thinking. Remember to focus your attention and your dialogue on the seller’s problems and not your own. Later on, show the other person how their needs will be met. For example, you can ask them, if we could work together with each other to help you exit your current difficulties, what would it mean for you personally? Once you’ve invested time to understand them and hopefully establish some common ground, you’ll need to ask them more probing questions about their business and what they want from it. Understand that in order to progress, you’ll need to give information as well as take it.

The vendor will have questions and concerns. It will help if you’re prepared for them and can see things from their point of view. Some examples of what the seller might be thinking about or might be worried about. Questions that would most likely be asked of you are, why do you want to buy my business? How much is my business worth? What will you do with my business? What about my team? How can I be sure of what you say? This is only the tip of the iceberg. Here are a few more worries that the seller may be thinking, but not necessarily saying. Am I doing the right thing? Will I regret this? Do I want this person to make my business more successful than me? How long will all of this take? Am I selling at the right time? Am I selling too cheaply? What are my tax liabilities? Will I be liable for future problems? Do I trust this person? Am I selling to the right person? Will I ever get paid? Will I get paid all my future instalments? Are they just going to asset strip the business and leave me holding the liabilities? What if they breach confidentiality? What will become of me and my life after I leave the business? Will I lose my identity or self-worth when I’m no longer the boss? I’ve got so much to do. Will this sales process distract me from my work? Will I look stupid? Do I know what I’m doing? This is all very confusing. My company and my finances are in a mess. What will people think? What will happen to the people I care about? Will I be expected to work for the new boss? What if they discover issues that we don’t talk about? What do I say? How will they do it? What are they hiding? What are their plans?

Be careful. If you explain in any great detail about how you intend to improve the business, the vendor might decide to either do it themselves or even potentially use that information to attract and help other potential buyers, which can ultimately hurt you. Try and reassure the vendor about their team and staff, especially if you’re hoping the vendor to finance the deal. But don’t commit yourself or back yourself into a corner should you need to make changes to the team, which you very possibly will. Without being robotic, you should find out the answers to the relevant questions, and depending on how your initial meeting goes, it’s likely that some of these questions will be asked later on in other meetings. Generic questions to find out about your business The seller What is the seller’s area of expertise? Will they be available to consult with after the sale? Who else is involved in the business, or who has financial or legal interest in the sale? Are there any share ownership disputes, historic, ongoing, or due? The sale of the company. How much are they asking for the sale? What are their expected terms? How flexible, how negotiable are they? Why are they looking to sell at this time? And what’s not included in the sale of the business? Are they looking to sell the assets or shares or both? And why is that important to you? How did they calculate the asking price? Was it an external appraisal and can they share it? What’s the history of the business? How long has the current owner run the company? Who else is involved in the business? And what’s the legal structure of the business? Are there any ownership and share disputes, historic, ongoing or oncoming? Then the marketing side. Who is involved in this part of the business? Who, which, and where are their target markets? Who are their typical clients? How big is their target market? And what is their market share? In what geographical areas do they engage in business? What are other potential target market areas, niches, and sectors? And what do their target market want? And how do they know what they want? What are their main USPs? How do their clients perceive them? Positioning, high-end, mid-range, cheap? What products or services do they sell? And what’s the most profitable product or service that they provide? And the ratio of these to total sales. What’s their main offer to attract a new business? How satisfied are the customers? What referral and testimonial systems are in place? How well are testimonials and referrals coming in? Who are the key influences in their industry? Which strategic alliances or joint ventures are in place and with whom? What do customers like most about their products or services or industry at large? And what do customers dislike most about their products, services or industry at large? What is better or unique about the services and products? Why do customers buy them? What’s the average lifetime of their client relationship and their average lifetime value? How well and how often do they currently communicate with them and via which media? What systems or software do they use to manage their client database? And how do they market to existing clients? How do they market to potential clients? What marketing channels have they used that worked?

The costs and the conversion rates. And what marketing channels have they used that didn’t work? Again, the costs and the conversion rates. What is the URL and the address of their main website? Do they have access to statistics for their website? Why hasn’t the business grown bigger? Be careful at this point not to antagonise the vendor. What market software, systems and processes are in place and how effective are they? And which marketing software, systems and processes are documented and available? And are there any particular problems, limitations or concerns to be aware of?

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.