When Ready to Deal, Remember These Four Principles

What comes to mind when you hear the word, “negotiate?” Do you think about getting the best deal or the lowest price? Does the word conjure up unpleasant thoughts of painful tactics to avoid giving anything up? If any of this rings true, you probably aren’t alone. For most people, the idea of negotiating a business deal — whether from the buyer’s seat or the seller’s side of the table — is mostly an exercise in safeguarding completely their interests and avoiding any sort of extra “give” in the transaction. A talent for negotiating successfully is not an easy skill to develop, primarily because most people don’t really understand what is truly meant by the word “negotiating,” which is actually derived from a Latin word meaning to carry on business.

So, the goal of negotiating shouldn’t be just about getting the best price. The goal for negotiating should be about continuing to do business by communicating with another party until reaching agreement. Here are four principles for negotiation, which you should try never to violate:

Why Negotiation Discipline Matters in M&A

In the context of a business sale or acquisition, negotiation is rarely a single conversation. It unfolds across weeks or months, spanning price, deal structure, representations and warranties, earnout mechanics, working-capital adjustments, and post-close obligations. A misstep in any one of those conversations can erode value or introduce risk that only surfaces after closing. The four principles below apply with particular force in that environment.

Before diving in, it’s worth noting that proper pre-sale planning dramatically strengthens your negotiating position. Owners who have organized their financials, resolved contingent liabilities, and engaged advisors before entering discussions are far less likely to make reactive concessions under pressure.

The Four Principles

1. Always Be the Initiator

It sounds too simple to be true, but almost without fail, you’ll find that whoever controls the start of the negotiations tends to control the close of negotiations. Let the other party begin, and you will find yourself constantly in response mode, often giving up control without even realizing it. It’s even possible to allow the other party to start negotiations inadvertently, simply by asking a question. For example, if you ask anything dollar-related, you will find yourself forever focused on their number and not your own.

In practice, this means submitting a well-constructed letter of intent early, presenting a detailed management presentation before the buyer’s team frames the narrative, and setting the agenda for key diligence calls. Sellers who engage a structured sell-side preparation process before going to market are far better positioned to initiate from strength rather than react from uncertainty.

2. Always Put It “in Writing”

Negotiations are not about long hours of verbal back and forth. Negotiations are about arriving at a signed, formal written agreement. When sitting down with someone in a business deal, a written document should be developed as you speak. It should include every point of agreement. Not only is it a waste of your time to do things twice — negotiate verbally, then return with those same points in written form — but you also run greater risk of inaccuracies entering the picture, sparking debate all over again.

In M&A, “in writing” extends beyond the definitive agreement. Term sheets, exclusivity letters, and diligence request responses all constitute the written record that a deal team will reference when disputes arise. A thorough deal closing checklist ensures that every negotiated point has been reduced to a binding document before you reach the finish line.

3. Know What You Want

Whichever side of the negotiating table you sit on, it can be surprisingly difficult to pinpoint exactly what it is that you want from the deal. That’s because such an exercise involves not only identifying your wants, but prioritizing them. You will also do well to differentiate your goals from the available avenues for achieving them. At times, you will have perfectly reasonable goals, but the route to making them happen may need to be scrapped in favor of another method.

For sellers, “know what you want” typically means distinguishing between headline price, net after-tax proceeds, deal certainty, timeline, and post-close involvement. A seller who insists on an all-cash close at a lower number may achieve more than one who holds out for a higher price laden with earnout risk. Reviewing your priorities with your advisors — and understanding how your financial house affects negotiating leverage — before the process begins is essential groundwork.

4. Keep Your Cool

College business students may be receiving a quality education on other facets of the business world, but few are probably schooled in what to do when entering a negotiating room full of oversized egos, personal agendas, and over-the-top emotions. When you’re involved in buy-sell negotiations, you can expect any or all of the above. Resist any temptations to call names or get angry. Instead, rise above and show the leadership so obviously needed. Use logic and facts to make your points and close the deal.

Emotionally-charged responses are especially costly when they occur in front of the buyer’s due diligence team. An outburst or visible anxiety can raise questions about management stability — a factor that buyers weigh heavily when underwriting risk. Staying composed signals that the business runs on systems and processes, not on the founder’s personality alone.

Applying the Principles: A Framework for Deal Conversations

The four principles reinforce one another. Initiating the conversation gives you the opening document. The written document creates the agenda. Knowing your priorities tells you which points to fight for and which to concede strategically. And staying cool allows you to execute that strategy without self-sabotage.

• Pre-LOI: Draft your own term sheet rather than waiting for the buyer’s. It sets anchors on price, structure, exclusivity length, and key conditions.
• During diligence: Maintain a written log of every question asked and answered. This reduces the risk of scope creep and protects you if the buyer later claims undisclosed issues.
• At negotiation impasses: Rather than escalating emotionally, table the point and return to areas of agreement. Momentum on smaller items often unlocks larger ones.
• Near closing: Identify your true walk-away conditions before they are tested. Knowing in advance which issues are deal-breakers — and which are merely uncomfortable — prevents reactive decisions under deadline pressure.

If you are approaching a transaction and want to structure your process from the outset, preparing a transaction brief is a productive first step to clarifying your objectives before the first conversation begins.

Frequently Asked Questions

Should sellers always make the first offer in a business sale?

Generally, yes. By controlling the initial framing — through an offering memorandum, asking price, or proposed term sheet — you establish the reference point against which all counteroffers will be measured. Allowing the buyer to frame value first cedes significant psychological and economic ground.

How do you handle a negotiating counterpart who routinely breaks verbal agreements?

Reduce every agreed point to writing immediately — even an email confirmation after a call — and reference that written record at the start of each subsequent discussion. If a pattern of bad faith persists, it is a signal about how the counterparty will behave post-close, not just during negotiation.

What is the biggest mistake sellers make when they know what they want?

Conflating a specific number with a specific outcome. A seller who has decided “I need $10 million” may reject a $9.5 million all-cash offer while accepting a $10.5 million offer with a $2 million earnout that never pays out. Defining what you want in terms of net economic outcome — rather than gross headline price — leads to better decisions.

How should I respond if negotiations become emotionally heated?

Call a brief recess. A 24-hour pause is almost always less costly than a regrettable statement made in the room. Use the interval to consult your advisors, reassess priorities, and return with a specific written proposal rather than a verbal response. Structured proposals de-escalate tension and move the conversation forward.