As an investment banker you are in the role of trusted advisor. You help business owners prepare for the process of selling their business by compiling information, presenting the company in its best light, and preparing the financials for review. You also spend some time with management discussing how to best portray any challenges the business might have. Despite all this preparation, there are still times when your investment banker would like to slap their forehead and roll their eyes.
Let's prevent some transaction anxiety by never using the following phrases while negotiating with a buyer.
1. "My drop dead price is $___ ."
If your sales process is being run appropriately, you really should never have a conversation with a buyer about how much you would be willing to take for your business. The process will yield Indications of Interest (IOIs), which will tell you what the market will pay for the business based on the information prepared.
During negotiations, let your investment banker take the reins. Emotions generally make business owners bad negotiators during the sale of their business. It's generally never a good idea to throw a number out at which you claim you will walk away. Many times, this number is too high (telling buyers that you aren't serious) or it might not make sense later in the diligence process. If for example, a buyer finds something out during diligence that makes your business worth much less (say you haven't paid taxes or have a pending lawsuit), you may in fact be willing to take a number that seemed too low before diligence began.
2. "This is a deal killer" or a "show stopper"
Personally, I cringe when I have a client say these phrases. I'm sure that there ARE circumstances when this is true, say, if the buyer turned out to be an axe murderer or had lied about their financial wherewithal.
However, in most cases, issues have a corresponding price tag.
That means that if a buyer asks for something that strikes you as impossible or so unsavory that you are considering walking away from the transaction, let your investment banker know. In most cases, we can trade that issue away or correct it with additional purchase price.
3. "If I had to guess,..."
A few words of advice when it comes to deal negotiation. Don't guess. You are not in a situation where you HAVE to guess. In fact, it's probably going to cost you money.
After you have worked out an IOI with a buyer and we are in the diligence process, the one thing a business owner can do to keep the purchase price high is to maintain credibility. I cannot stress enough how important this is.
If someone asks you a question, don't guess. Always get it right. Any guess that later proves to be incorrect has the ability to make it look like you don't know about your business and then the "if he doesn't know ____, there's no telling what incorrect slop he's told us to this point" begins.
It IS perfectly OK to say, "I don't know offhand. Let me check on the data and we will get back to you."
4. "Didn't I tell you that?"
Nothing will make an investment banker's heart stop more quickly than this phrase. As we meet with clients and prepare the materials it is important that we know everything, both good and bad, about the business. If you have a toxic waste dump on your lot, tell me. If your biggest customer just notified you that they are leaving, tell me.
It is never OK for a buyer to find something out about the business during diligence that your banker didn't already know.
If we know everything, good and bad, we can be prepared with an answer or some data that shows why this information isn't as bad as it appears. When we are caught without that preparation, it inevitably shifts the power to the buyer and there is almost always a price cut as a result.
At the end of the deal the words we want you to say are "congratulations" and "job well done!"