Are You A Natural Negotiator?: Why Negotiation Strategy Matters when Selling a Franchise
By: Mike Handelsman
In today's tight market, negotiation strategy plays an important role in the sale of any franchise.
Even if you execute every other aspect of your business sale perfectly, the lack of a good negotiation strategy can still derail the deal. A good business broker can help, but ultimately the business owner will need to be an integral part of negotiations.
Some franchise owners are natural negotiators - others aren't.
Fortunately, you don't need to be an expert to successfully execute a negotiation for the sale of your franchise. Instead, you just need to put these ten simple strategies in place before you initiate in-depth negotiations.
Establish Common Ground. Don't even think about entering into negotiations with a prospective buyer until you have established common ground. For franchise sales, common ground is defined as a signed Letter of Intent that describes the proposed price, structure, terms and conditions of the sale. The Letter of Intent is the buyer's responsibility and it will serve as the starting point for the negotiation process.
Be Prepared to Listen. It's more than coincidental that good deal makers are also good listeners. In a negotiation, you need to learn as much as you can about the buyer. With just a little listening, you can glean important information about his motives, issues, and agendas. Even if your broker is the one who is representing your interests in the deal, try to be present for negotiations where appropriate, so you can gain insight into the buyer's mindset.
Define Your Objectives. Knowing your buyer is only part of an effective negotiation strategy - you also have to know yourself and your objectives in the negotiation. Generally, your goal for the negotiation process should be the timely completion of a mutually acceptable purchase and sale agreement that is advantageous for both parties. But in reality, the negotiation process often culminates in a lopsided arrangement. The party who gets more of what they want is usually the party that goes into the negotiation with a clearer understanding of their objectives.
Articulate Your "Deal Breakers." There are some things you simply aren't willing to give away through negotiation. You know what those things are - but does the buyer? The disclosure of deal breakers at the start of the negotiation process eliminates the possibility that a misunderstanding will create a last minute impasse. For the same reason, make sure you (and your broker) have a clear understanding about the buyer's deal breakers from the outset of negotiations.
Consider Your Concessions. Once you have your deal breakers in place, it's time to inventory the concessions you may be willing to make during negotiations. You don't want to dig your heels in so firmly that the deal becomes untenable, but you don't want to give up too much, either. Unless you are an experienced franchise seller, you will probably need help from a broker or other professional to determine what kinds of concessions are standard and which aren't. For example, in franchise sales it is not uncommon for the seller to finance part of the purchase of the price, or to stay on with the company for some period of time to help ensure the transition to the new owner goes smoothly.
Consult the Experts. No matter how knowledgeable you are about your business, negotiating the sale of a franchise can be a complicated task. As you enter negotiations, you should be prepared to consult experts along the way. Brokers, attorneys, accountants, appraisers - there is a range of experts who have the skills and experience to help facilitate your efforts to achieve a mutually-acceptable deal. At a minimum, get advice from a professional tax planner so that you can structure the deal in a way that avoids serious tax consequences.
Get Realistic. Negotiation is based on the principle of give and take. When one party gives something up, the other party usually gets something in return. If you enter the negotiation process with the mindset that the buyer will accept all of your conditions and you will accept none of his, it will be impossible to negotiate a successful sale. Be prepared to accept some of the buyer's conditions - and to demand some of your own conditions in return.
Strategize Small Victories. One of the biggest mistakes I see franchise owners make during the negotiation phase is a tendency to strategize exclusively toward the close while neglecting smaller strategy goals. Successful deals are built on a series of small "yes" events - all of which serve to prepare the buyer for the one big "yes" at the end of the process. As you develop your negotiating strategy think in terms of setting a series of small goals that can elicit positive responses from the buyer and walk him toward the close.
Pay Attention to Timing. It's hard to underestimate the importance of timing in the negotiation of a franchise sale. The ability to discern where you are in the negotiation process and when it's the right time to bring up key issues like price will play a central role in your negotiation strategy. My advice for first-time negotiators is to watch for signs that your buyer is ready to take negotiations to the next level. Eagerness, frequent contact, and language that assumes the sale will happen (e.g. "Will you still be available for questions after we sign the papers?") are all excellent indications that the negotiation is proceeding smoothly.
Be Positive. Exiting a franchise can be a highly emotional experience. Sellers sometimes struggle to not only contain their emotions, but to maintain an upbeat attitude about the sale. But remember: even if you are a little sad about selling your franchise, the buyer is expecting a positive and exciting purchasing experience. Take an assessment of your attitude before you enter negotiations. If you question your ability to stay positive, turn the negotiation process over to a broker or someone else capable of representing your best interests.
As a final piece of advice, don't forget to continue to run your business well, even in the final days as you close in on completing the sale.
"The biggest mistake sellers make is not continuing to run the business and getting caught up in the sale process," says business broker Andy Cagnetta of Transworld Business Brokers. "If revenues and profits slip, even a few weeks before a closing, there could be problems. Buyers and banks often ask for the latest numbers a day before a closing. If the numbers are down, be prepared to take a haircut on your sale price."
Remember, when everything is said and done, the sale of your franchise is business - not personal. Although it may be difficult, try to infuse your negotiation strategy with a sense of objectivity to significantly increase your chances of reaching a successful and profitable agreement.
Mike Handelsman is Group General Manager for BizBuySell.com and BizQuest.com, the Internet's two largest and most heavily trafficked business-for-sale marketplaces. Both sites feature business valuation tools that draw from the largest databases of sales comparables for recently sold small businesses and include two of the industry's leading franchise directories. Since 1995, BizBuySell and BizQuest have offered tools that make it easy for business owners and brokers to sell a business and for potential buyers to find the perfect business. Together, BizBuySell and BizQuest list more than 75,000 businesses for sale at any time and have over 850,000 monthly visits.
Prior to his online experience, Mr. Handelsman began his career in brand management with Procter & Gamble, and also worked as a Management Consultant with McKinsey & Company in Chicago and San Francisco. For the past 15 years, he has had extensive experience dealing directly with start-ups and early-stage businesses. Mr. Handelsman is a graduate of Duke University, and holds a MBA from the Harvard Business School.
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