Negotiation Tactics: Fasten your seatbelt

In this episode, we dive into the art of negotiation, a critical aspect of buying or selling a business. Our hosts discuss how to prepare for negotiations and the nuances of handling offers. Whether you're a buyer or seller, you'll learn practical tips to navigate the complexities of deal-making, ensuring that both sides achieve their goals without unnecessary difficulties.

---

TRANSCRIPT:

of Integrated Insights. My name is Michael Hefner. I'll be your host for this episode. I'm joined again by Andrew McQuilkin and Dave Parker. Hey guys. Thanks for joining me. How are you today?

How are you? How are you? So today's episode, we're going to be talking about negotiation. So it's a big part of what we do, right? We've talked about communication previously, but we also help with the negotiation for the two sides of the table.

How can business owners prepare for negotiations before they enter into that stage of the deal? You know, I read this question during our pre -meeting,

and I was like, the first thing it came to my, first thing it came to my mind was fasten your seatbelt and hang on. That's kind I want to want to tell a business owner,

just passing your seat, and hang on, it's going to be a bumpy ride. It's going to be a bumpy ride. It's going to be a bumpy ride. It's going to be a little fast and furious, but it'll be good. There you go. At the end of the day, you know,

I think that what I really want to say is trust us. Just trust us. Trust us that we can get what you want. I don't know how many times we get to to appoint a negotiation,

we're able to go, okay, here's what's really important, Mr. Seller. I feel like we've accomplished this goal, this goal, this goal,

and this goal that you had. We're not quite there on this one. We may not get there. And so I think it's just really important to let everyone know that we're going to do the best we can to determine what everyone's goals are.

And then we're going to meet those goals. And so it's important for you to communicate up front as a seller. It's really important for you to communicate everything that you're wanting and thinking.

Because how many times we get to the end, you know, two days before closing it. Oh, by the way, can you ask them about this, see if we can throw this into the deal? People don't realize how, number one,

how awkward that is. But number two, how it appears to be deceitful in some cases because of what you may be asking for. And it could have all been handled up front and probably been handling the deal,

but someone's just maybe afraid to ask for it. Or maybe it's just something they're thinking, well, honestly, let's be face it, lots of times when people get what they're really wanting,

that spirit of greed sets in, and they're going to kind of push for a little bit more, a little bit more. They want to feel like that they've won, and I think it's really important to realize that there's not a winner. It's just everyone's getting what they're wanting.

You're wanting to sell a really good business, and someone else is going to get to buy your really good business. Let's don't make this a competition. Yeah, I think one of the things that we have to do is stop negotiating with our client,

right? And because, look, most business owners, they have done tremendously well to get where they're at. And a lot of what they do in their day -to -day is negotiating,

right? They'll make sales, they'll talk with their customers. I mean, they're doing an incredible job. And a lot of them are in the habit of negotiating.

And so we'll try to negotiate with us on certain things. And honestly, we're trying to get you the most we can.

Right. So as a seller on the cell side, we are, we want you to have the most, the most that you can get. Right. And so, so don't,

don't negotiate with us, be clear with what your expectation is, and allow us to negotiate on your behalf to get you what you,

what you're expecting or more. And so that's where we, that's where we have to start. And we also have to understand that,

I mean, a lot of deals, especially nowadays, the buyer and seller are going post -transaction. and this whole negotiation,

hey, I want to better you, that's not the way that we set up success moving forward after the deal. And so we want to make sure that we are trying to negotiate from the same side of the table.

And that's where it's the easiest on the front end to help our clients understand that that's what needs to happen.

It's an interesting problem to have, right? Because ultimately, if we're doing our job well, it should feel kind of easy to our client. So that feeling of,

oh, well, but I got what I wanted too easily there. Maybe I can get a little bit more. It's like, well, it wasn't that easy. just doing our job. So. And to that point,

Michael, you know, there's a few times where we've had a client where I brought them an offer and they say, well, so we need to ask for more now because that's their first offer.

They didn't see the first offer, you know, because we've already negotiated a handful of times. And so that they don't always see the first offer. We,

a lot of times, just take that first offer and say, do better. You know? And so, and so honestly, that's, that's, that's, that's something that, that we have to walk through with sellers is,

hey, this is not the first offer. So how does that response from the client change whenever you have multiple offers at the table? You know, is that, is that similar? Is that magnified?

Because there's three people, now they want you to have them negotiate against each other? What does that look like? Well, by virtue of having multiple offers on the table,

they're negotiating against each other. And, you know, if, so we call it the auction process. It's not exactly an auction process, but maybe like a silent auction type of deal,

to where, you know, we're asking, If we've got a business that we know is going to be responded to well by a lot of buyers,

then we would maybe set a date where people put in their letters, not letters in intent, but IOWIs, their indications of interest, and that they would kind of throw a first number out there.

And then with other nuances to it that we would then communicate. But we're constantly going back this where Andrew and I are typically talking a lot. He's going back to them saying,

hey, you know, you might need to come up a little bit here there, much like a real estate negotiation, I think. You have to be very careful, though, that you're not, you've got to keep integrity going through all that and make sure that you're not doing things like,

like I've had situations where we're buying a company, we're on the buy side. And I've actually had, and typically this is happening when I'm working with the seller directly, they're not being represented.

I think that's why we know how important it is to have representation because we deal with a lot of sellers who don't have representation. And I mean, I kind of like that because it's just different.

But, you know, I've had them say, well, here, let me send you something. They'll send me an LOI that they've gotten. I'm like, you should have never done that. I mean, a mediator, an advisor would never do that. You would hope.

Now, whether it's the good advice, I mean, honest ones, right? I mean, I'm not going to send you it. I might talk to you a little bit about, you know, if you really want to stay in the game, you might need to bring your offer up a little bit and things like that.

So that's how kind of that works, Michael, with the multiple offers. It's not quite like the housing market where you've got people that are just clamoring over things when the market's super,

super hot, and, you know, you've got 50 offers coming in, although there are businesses that are out there that are for sale that are just really, I mean, home services right now is just exploding. There's a lot of groups out looking for home services.

It's a great way to be able to take it to market like that. That's our job. And there's a lot of verbal. We are verbalizing. Andrew, wouldn't you say before we ever get an LOI in,

we've pretty much negotiated that LOI verbally before most of the time, not the whole thing, but a lot of it. Yeah, probably 80 % of what is in the LOI we've talked,

we've addressed verbally for sure. I would say that's probably a safe number. And so I think that with multiple offers, it's not just about the numbers,

right? I know that might be beating a dead horse here over and over again every, every episode, but again, it's not always about the numbers, or it's not only about the numbers,

but it's also about the people behind the numbers, right? And so we, when we, let's say we have three offers and for one of our sellers and they're completely different outfits right we may have a strategic buyer an individual buyer a financial buyer there's so many and and even may have like three financial buyers at the table too and so you put up different things about the buyer comparing the buyers not just the

offers with with the seller right and so hey who do you trust you know what would actually line up well to what your goals are it's not just that's that's that's that's where we can negotiate that but but let's first talk about who you would want to sell to and then and then let's go to that person and and let's talk about how we can improve that offer if it's not good enough.

And so those are things that we do with the seller and how we choose who to negotiate with first. Right. The net net net number is really what people are after,

right? I mean, so maybe willing to do a stock purchase rather than asset purchase. That's going to save someone taxes. They can give us a lower offer, but it may be a higher net number for our seller.

They may be wanting to do more seller financing. And our seller may not have, they may have already said no to seller financing. Well, it behooves us to go back and say, they've said they're not going to accept seller financing.

So do you really want to put an I -O -I in there that has seller financing in it? So it's up to them at that point. But that's how we, that's how we can negotiate the nuances of it. At the end of the day, they're going to have a number that's already in their head.

It's, there's other little things like Andrews said that we can be helpful with. What about in the deals that it's not so much about the purchase price? What about the deals that the previous owners staying on,

things like that? Because the price is determined in the LOI up front, but how do you negotiate those other non -financial pieces? Yeah,

that's, That's interesting. I mean, there are quite a few things that we would need to negotiate. We'll say a lot of it is just giving expectation to it.

But like transition, you know, it's also about structure and not just about the price, but the structure of the deal, whether it's a seller note or earn out or roll to equity,

you know, all of those, the working capital. It's kind of interesting. A lot of people, a lot of other advisors I've noticed, they don't necessarily want to address or they don't care to address working capital.

Many do. I'll say that. But, but, and most of the time, it's even a deal that's happening that doesn't have an advisor. They don't address the working capital portion of the deal.

And so that is, we're sticklers on that. We will, we will never let a client sign an LOI without addressing the working capital. Because that,

that's a big deal killer on the back end after you've, if you haven't addressed it, and it's, and there's some, it's a surprise towards the end. So we have to make sure that it's up front.

This is what we're planning. And then we can move forward after we agree. Those are the types of things that are important to us to negotiate. I would say also employees,

you know, what role are people going to play? You know, I've got my daughter working in the in the business with me. They want to continue, you know, what does that look like? Well, she doesn't really work a whole lot,

but she gets full -time salary or, you know, honestly, we negotiate all that. We tried to get, we, we'd come a little bit shy of full -on employee contracts because we feel like the attorneys need to get involved with that,

but we will help if need be to go in and sit. And we've, look, we've had people's family members be able to stay in on the business and, and receive a paycheck for X number of years and that's kind of figured into the pricing but that's the way they wanted to do it and that was really good for the owner and that was really good for their families so again up front what are your goals how do we how do we

communicate those how do we negotiate those and how do we negotiate them we just throw it out there this is what's important to the seller and most buyers the buyers we like to deal with that really care about the sellers and they really want that relationship with them so they want to know what's important to them this is really important to them that their daughter continues to have a place to go to work every day

and they're willing to have you continue to kind of price that into the end of the deal especially for the ones that are maybe they're not retaining equity but they're staying on for we've We've had many,

many business owners that part of their day to day in running the business is the sales portion of it. And so they want to continue selling because that's what they love doing.

But the day to day operating back end of running the business, they don't really care about. But what they love is sales, right? This is an example. And so what is,

how do we script that portion? And so we've, we've, we've seen, we've seen a buyer say, okay, well, we're just going to put in there that we're going to have an employee contract.

Okay, well, what's going to be in that, right? And so what, what, what's the salary or what's the commission or what's the, you know, all of those things and, and even scripting out, hey, you're going to do this for this period of time.

And that, It's basically the most basic bones of an employee contract without all the details. It's just setting expectation,

hey, this is what we're going to do over the next couple months before we close. And this is kind of what we're going to put in some other agreements that we know that's what we're going to be doing.

And so things like that for sure are going to have to be in the LOI for us. Well, before we wrap up today, what would you all say about tactics to dealing with difficult buyers or difficult parties on the other side of the table?

When negotiations get rough, what are some of the strategies to deal with that? See you later, right, Dave? Do you want to kill this deal that's what i that's what i want to say some days um so look i think it all boils down to this you know keeping people at the table is it becomes it's it's they call it the art of negotiation for a reason it becomes an art keeping people at the table by the time you get three

quarters of the way through a deal and you're hitting that last and that last stride has all of the legal stuff involved. In fact, attorneys love to leave the legal stuff till the very,

very end. And so, and with that always comes a lot of stress and a lot of things that just are brought up at the last minute or that are thought of. And, and so,

you know, deal fatigue sets in and deal fatigue is a real thing. And it's different. You may wake up today and feel fine about everything and the buyers got deal I don't know exactly how we do what we do.

All I know is this. We treat people like their people and we and we care about them. And I try to establish relationships with both buyer and seller.

And I've been accused sometimes of our client. Are you negotiating against me? No. No. But I've gotten to know, I've gotten another person who's buying your business so well that they've become friends,

you know, albeit maybe long distance. They become friends and there's a mutual respect. So I believe what they're telling me right now. Now, obviously, not all the time, but, um, but you try to,

you try, because what you end up doing, you end up caring about them and their families and what they're doing this weekend. What, you know, it's that warm climate thing, you know, where you, you, you kind of warm yourself up because,

and you let them into your life a little bit too. That way, when they know each other, now you're having communication. The other thing I think is something that my wife being a life coach taught me years ago is, you know, when you're going into a conversation that's going to involve what most people look at as conflict,

just tell yourself going into that conversation that you're just going to have a conversation. You're not going to have, you're just kind of a conversation about some difficult stuff,

but it doesn't if you go and telling yourself it's going to be conflict it's going to be conflict and it's amazing how our minds work like that so i find myself kind of talking myself through this sometimes like okay i know this is going to be a difficult conversation but let's not make it into a conflict let's just make it into a difficult difficult conversation and most people we're dealing with a lot of adults in

the room you know we're not we're not you know they're able to take difficult conversations and turn them into something, again, if you're pointing people to the goals. So I would say from our standpoint,

we want to get to know both buyer and seller. We obviously want to know, and we're always working for our client in their best interest. That's our fiduciary responsibility. But at the same time,

we want to know the other side. And when it gets to really difficult stuff, especially toward the end, you just have to kind of keep plowing through it and keep working through it and tell everybody we just need you to give in on this one you've given you you've you've you've gotten this this this and this i really think you need to give in on this one sometimes you try to tell your client that you need to give

you just need to stop fighting for this it's not going to happen yeah michael i'll say that's why i think dave is so uh so so good at negotiated because he puts a lot of effort building rapport in with with both parties right and so the way that they respond to him is a lot better because of that report even if it's a really difficult situation or maybe they're just in a bad mood it's a bad Monday,

right? So, and so I think that that's, that's a big reason why I think that Dave is so good at it is because of, of the relationship that he has built.

They just respond better that way. When you, when you just come in and, and, and, you know, it's kind of funny, we, we, we've, we've, we've, we've, we've told a handful of attorneys that,

that want to come in last minute and just slam the hammer down and and it doesn't they don't respond well because they haven't built the relationship there there have been many times where they that's they've built a relationship and they've done that and it goes way better and so that that that rapport that that i think that that dave builds really well is it helps a lot of times just keeping the deal going and

closing well we've had this discussion around our office a lot too is that you know these these these these repores and these communications. You know,

and that's, and that's, we tell our team, we're training our team to do that when they're in a space where they have to be communicating with people. So I guess all that to say, if you find a mediator that just wants to work from nine to five every day and they're not going to be available,

it's going to be a really tough go at the end of your transaction. And I will also say one of the things, because I know that, look, I've got kids and there are specific times where I'm not not answer my phone,

but what I am doing is telling them, hey, I'm in the middle of a bath time for the kiddos and I'm going to put them down. And then can I call you after that?

And, and I mean, it's just, that conversation after that, even if it's a, especially if it's a harder conversation, they just, okay, you're right.

Okay. That's that, yes, let's talk then. And it's a Hey. We kind of like have to tell our,

we have to tell our family sometimes, hey, we're getting ready to close this deal. My wife goes, I know what that means. See you next week. Yep. It's understood. Absolutely. It's what we do.

All right, guys, well, let's go ahead and wrap this up. That's all the time we have for today. Thanks for joining me. Great conversation. Thanks, guys. And that wraps up another episode of Integrated Insights with ICCG.

Be sure to subscribe and stay tuned for more stories from our team.