What's the Deal?
Oct 31 2011
New Fund Eases Way for Gen Y Entrepreneurs
Avoid This Fatal Myth About Monetizing
How I Learned to Stand My Ground With Clients
Even in this economy deals are being done. Depending on the study, and sometimes the day, that you check, the startup deal environment is either hotter than ever or cooling off at a rapid pace.
But regardless of the health of the industry, everyone wants to know what are some of the best negotiating techniques for both buyers and sellers, and how can either side make sure it is getting the best deal possible? Here's how some members of the Young Entrepreneur Council, an invite-only nonprofit organization for Millennial business leaders, answered:
Shop The Deal
Always make sure that you have other opportunities on the table during any negotiation. With multiple opportunities, you will be putting yourself in a much better position during a negotiation. Multiple opportunities will allow you the flexibility to walk away from a deal, in addition to pitting the opportunities against each other to get the best deal possible.
Figure Out What's Important to the Seller
When I purchased my first business, I realized that the seller's No. 1 goal was to make sure that the business was going to be run by a capable buyer, not maximizing purchase price. We saved a bunch of money by realizing that he wanted to be comfortable with us, rather than just be blown away by a big number.
Determine the Customer Lifetime Value (CLV)
Much of a company's success depends on customer equity, which is can be broken down into 2 elements: 1) The dollar amount each customer spends with the company, and, 2) the cost of acquiring a new customer. There is a formula for identifying these costs and it is absolutely priceless in determining a company's value. Google the specifics of this formula and apply it to your analysis.
Focus on the negative
You will want to ask many questions and find out the weakness in the company. When you find out what that weakness is, keep asking questions about that and find a way to get upset or frustrated about that weakness almost as if you feel it devalues the company. If you only focus on the negative, chances so will the seller of the business and chances are you will get a better deal. Then turn it.
-Louis Lautman, Young Entrepreneur Society
Go Outside for Assessment
Use objective, third-party criteria to make sure that the terms of the agreement are fair to both parties. For example, instead of just offering X amount, show what independent sources you looked at when determining the fair market value of the business. Also, think outside the box and proactively look for opportunities to create added value and additional mutual gain in the agreement.
-Doug Bend, The Law Office of Doug Bend
Find Middle Ground
Most people think of “best deal” as lowest price. I don’t necessarily think this is the case. When looking for the “best deal” I would often think of the best mutual win for both parties. This year I have made 5 acquisitions, and I am confident that I could give “acquisition references” for anyone new who I am talking with.
Know Thy Value and Costs, and Understand the Other Side
Negotiations are not about perfect technique but rather more about finding mutually beneficial solution. Although both sides are self-serving, no one can argue with costs. If a certain number is just too low for you, stand your ground. Maintain your value by emphasizing that and how any number below your final number is impossible with your costs. Even the most stubborn negotiator understands that.
-Nick Friedman, College Hunks Hauling Junk
Do Your Research
Make sure you get all tax returns as well as profit and loss statements since their inception as tax returns don't lie and P and L statements give you an idea if the company was mismanaged. Because you're an entrepreneur and instinct will be the ultimate decision as to whether or not to buy, at least the tax returns will help you negotiate a better price.
-Michael Sinensky, Village Pourhouse
The author is a member of the Young Entrepreneur Council. The YEC is an invite-only nonprofit organization comprised of the country’s most promising young entrepreneurs. The YEC promotes entrepreneurship as a solution to youth unemployment and underemployment and provides its members with access to tools, mentorship, and resources that support each stage of a business’s development and growth.
Scott Gerber is a serial entrepreneur, internationally syndicated columnist and TV host, and the founder of the Young Entrepreneur Council. He is also an active angel investor and author of the book "Never Get a 'Real' Job". He has been featured in the New York Times, the Wall Street Journal, TIME, CNN, Reuters, Mashable, CBS Evening News, MSNBC, US News & World Report, Fox News, Inc. and Entrepreneur.
Comments
If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.
