Everybody loves getting a great deal, whether it’s saving a few pounds on your shopping or negotiating hundreds off the price of your new car.
It’s no different when buying a business. In fact, given that the majority of businesses sell for at least 6 figure sums, knowing how to get a better deal could potentially mean you pay thousands less than the asking price.
From shopping around to using negotiation tactics, our blog post looks at several ways you can get a better deal when buying a business.
Have a List of Criteria
There’s a reason we take lists with us when we go shopping, and a reason we often come back with bags full of unneeded products if we forget them.
Having a list of initial criteria can help you quickly screen if opportunities are right for you, these can be marked based on whether you are willing to make exceptions if the right opportunity came up.
For example, your criteria might state that the business has to be located in Bristol and has to be operating in the technology sector – you would not be willing to make any exceptions on these factors.
On the other hand, you might decide that the business should have more than 10 staff and a profit margin of 10%, but you would be willing to make an exception on these factors if other criteria were met.
Have the Business Independently Valued
Having a business valuation carried out is an accurate and reliable method of putting a price on the business based on fundamental metrics such as asset valuation, entry valuation, earnings multiples and more.
Arming yourself with a valuation shows you are serious about the opportunity and gives you room to negotiate should the asking price be higher than your valuation has indicated.
Keep in mind that valuations incur fees, so you’ll likely only want to have these carried out if the opportunity has fulfilled your initial criteria.
Think Long Term
When looking for a business buying opportunity, it’s easy to get caught up in current performance and valuations without looking at the longer term picture.
Unless you are planning a quick resale, the performance of the sector and the growth prospects the business has should be more important than the current performance which you can influence and change.
In fact, buying a business that is not performing well due to poor management can provide some of the best longer term results if you believe it can be turned around and have the resources and expertise to do this.
There are of course exceptions to this, if you are looking for a hands-off opportunity, a more established business with a steady track record of performance is likely to be a better choice for you.
Shop Around
There are several places that prospective buyers can look to find businesses for sale, each of which has positives and drawbacks.
Online marketplaces feature thousands of opportunities, which is great for seeing what’s out there but can be overwhelming and is often full of low quality listings.
Dedicated broker websites generally feature high quality opportunities, but you’ll typically often find that only businesses the broker is working with directly are listed.
Business networking groups can be excellent places to find business owners looking to sell, but they are few and far between.
Social media can also be used to find prospects, but of course, this comes with the risk of scammers and generally features lower quality opportunities.
Using a mix of all of these platforms gives you plenty of avenues to find great deals that are available. If you want to know more, take a look at our blog post running through the best places to find businesses for sale.
Understand What the Seller Wants
Whilst the primary motivation for selling a business will be the money received from its sale, sellers may value other factors as well. Understanding what the seller wants from the sale can help you get a better deal.
For example, if it’s a family run business and the seller is looking for somebody that shares their values, showing an interest in the business and having plans for the future might allow you to pay less than the asking price.
In a scenario where the seller is looking for a quick and easy sale, being amenable and agreeing to a short deadline on the deal might make you a more attractive prospect in the seller’s eyes.
Be Prepared When Negotiating
When it comes to a better deal, perhaps the most common area where buyers fail is negotiations.
Pressure, lack of preparation and dealing with an expert can often lead to buyers making concessions or being less aggressive with their terms than they initially planned.
If you are going it alone in the board room, our top tips for getting a better deal are:
- Come prepared with evidence to back up your claims
- Having a valuation will greatly increase your power in the negotiation
- Consider the long term value of the business to you
- Remember that you might be dealing with a third party, rather than the business owner directly
- Having plans for the future of the business may improve your position in the negotiations
- Remember that you are not obligated to buy and can walk away at any time if you are not happy with the terms offered.
It’s important to note that following negotiations, the correct legal process must be followed to make the deal official, we would highly recommend this is done by a legal professional to ensure it’s done correctly.
Use a Business Broker
We hope that this post has given you some ideas on how you could get a great deal and potentially save thousands when buying a business.
For many buyers, the time required to research opportunities and the expertise needed at the negotiation phase means that using an expert broker is the best approach to saving money on the deal.
At Bristol Business Brokers, we help entrepreneurs find opportunities that meet their requirements using our proven 5 step approach to finding you the right business to buy.
To find out more about how we can get you the best deal when buying a business, why not get in touch today and arrange an initial conversation? Call today on 0117 379 0117, or fill out a contact form and we’ll get back to you.