17 Feb Don’t Discuss Price
Finding the time to take away from your business to work on selling it can be difficult, especially when you’ve spent a great deal of time working in your business. When it comes time to sell, however, it’s a great time to start working on the business. Of course a broker will tell you that you should go through some type of business specialist for the valuation and general sales process for your company, but even if you feel you want to sell your business by yourself, there are some fundamentals which you should adhere to in the process.
With that in mind, let’s move onto sales price. No, not the price itself or how it is obtained, but more on how it is treated in thenegotiation process of the business sale. Here is a simple rule: do not bring up, discuss or mention the price you wish to obtain for your business.
Now, on to a short story. A transaction which took place a very long time ago with a medium-sized oxygen take supply company and a large oxygen tanks supply company illustrates this point. The smaller oxygen tanks supply company, with offices in Denver, Colorado was steadily growing with clients in Colorado, Wyoming and Utah. With this growth, the owner could see the only way to quickly expand was to acquire the other customers in the surrounding areas. These customers were owned by a much larger corporation headquartered in Canada.
In his attempt to expand, the owner of this small, but growing enterprise reached out to the Ontario-based company asking if they were interested in selling of their division in the Denver area. To his surprise, the executives responded by saying, “we don’t sell, we buy.” With that, the executives asked him if he would be willing to sell. “For the right price, certainly,” was his response.
Without discussing price, the client quickly responded by saying, “let me send you some information on my company, including tax returns, clientele, etc. and you get back to me in a week or two on a price you would be willing to pay.” After a week, he received a call indicating they would be willing to pay $XX million. He quickly responded by saying, “I was thinking more like $XX million” (a price several million higher than the initial offer). “We’ll get back to you in a few days.” To shorten the story, the seller was able to obtain his desired price for all the assets of his company.
Avoiding showing the cards can be a difficult temptation to avoid during the initial selling stages, when you are courting buyers. In my friend’s case, he wasn’t courting multiple buyers, but he knew what he was willing to sell for because he knew both the extrinsic and intrinsic value the company held.
What if the story ended with him asking his price first? Perhaps they would have taken the offer, but that’s simply not how it works in these types of transactions. The term “make an offer” is something you will hear in so many instances. Sellers don’t make offers, buyers make offers.
Some may think this type of activity shows a struggle for power, which is completely true. One party is attempting to gain power of information over another. Because of the buyer’s position, he/she should always keep power on their side of the court.
With all this said, it is important to be patient. If your business has worth as an cash producing asset, you will eventually see the right buyer come along. When this happens, let them court you buy asking the questions. It is good to not be overly zealous in this stage of the business brokerage.