Negotiating the Best Price When Purchasing a Business

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Posted on January 5th, 2009

Buying an existing business can bring about many benefits.  There’s the fact that it is already open and running, employees are in place, and if the business has been around long enough—a degree of lasting power.  However, it can be difficult to not let your desire for a business interfere with the negotiations.  It is important for you to think about a few key things before singing the papers and taking the keys.

One of the first things you need to do is protect yourself.  If you don’t already have a financial advisor or corporate attorney, you must do this right away.  It is very likely that they will recommend that you incorporate yourself so that you don’t risk your own personal assets should the business ultimately fail.  Although we hope for the best, this is a plausible end to this venture if things don’t play out well.

Now it’s time to consider a few questions and their implications when it comes to negotiating the purchase price of a business.  If you have your heart set on a particular place, it will be even more necessary to have your financial advisor with you during negotiations to be your voice of reason.  Ultimately, the asking price is negotiable, so keep that in mind as well when you address the following concerns?

Why is the business being sold?

Certainly, there are people who want to move on to different things at various points and this is understandable.  If you are looking into a very popular and well-established business, find out why it’s being sold.  Is a large company that will put the place out of business moving in during the next six months?  Has the business incurred a great deal of unpaid debt?  Understanding the real reason why a business is being sold is crucial and puts negotiation power in your hands.

What exactly are you buying?

Are you buying the business as-is, or will the current owner make certain improvements and concessions to relinquish ownership?  Remember, unless otherwise stated, you will picking up the bad along with the good, including outstanding debt, rent, and any maintenance issues that may need to be addressed.  Get the place fully evaluated and find out the exact nature of the financial situation before getting ahead of yourself. 

How much do you want this business?

If you take a moment to be realistic, take a look inside and evaluate your motivations for purchasing this business.  Could your desire for the place be clouding your judgment?  Many people are willing to make more concessions in negotiations when they really want something, compared to wanting anything that will be successful and generate profit.  Sometimes it is good to consider these kinds of things as well.

If you know exactly what you are getting into, then proceed to your negotiations with your advisor ready to find a price that will benefit both you and the seller.  Buying a business can be a tricky and length process, but after you take possession of your new place, there will be so much to do that you’ll soon forget the stresses and pressures of the acquisition.

 

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