Whether you’re a business buyer or seller, how you respond to requests for concessions will depend on the amount of alternative options you have. If you’re a business seller, it wouldn’t make sense to agree to a concession if you have better offers on the table. If you’re a business buyer, it wouldn’t make sense to increase your offer if you have better investment opportunities.
In deciding how you respond to requests for concessions, your starting point should be knowing what your alternative options are. This way, you can always compare current offers to those alternatives. Even if your alternative is not buying or not selling your business, assessing the opportunities and costs with that alternative objectively, will help you decide how flexible or not flexible to be in the negotiation.
You can be receptive to requests for concessions so long as you’re negotiating a deal worth more to you than your alternative options. The challenge then becomes ensuring that that flexibility does not come at a substantial cost to you. Instead, that flexibility helps you close a deal that you wouldn’t otherwise be able to close.
Look for Tradeoffs
There’s a fear that implying you are open to negotiating is metaphorically similar to opening a can of worms, and hence should be avoided all together. The problem with this approach is that it often comes at the cost of you missing out on opportunities. Also, that approach assumes that negotiating means compromising. That doesn’t necessarily have to be the case.
There are creative ways you can structure agreements, where instead of either the buyer or seller conceding, they find tradeoffs on issues that drive them towards agreement. Here are a couple of examples of how this can work.
- A seller with manufacturing equipment drops their asking price by 20%, but keeps the equipment to sell to another buyer as the current buyer has no use for that equipment. This puts the business price in the budget range that the buyer is ready to spend.
- A buyer that’s interested in the intellectual property of an Amazon FBA business, suggests to the seller that they keep the sales from the remaining inventory in return for a decrease in the asking price. The seller still gets as much of their ask as possible, and the buyer gets the business model and the IP.
- The buyer and seller agree that the price of the business be split into installments to provide the buyer time to satisfy the asking price. The buyer gets an opportunity to run the business and make profit, and in turn the tradeoff of time leads to the seller receiving her asking price. See this article for more on how to structure these types of agreements.
There are plenty of ways you can respond to requests for concessions, without necessarily having to give a big portion away. Being flexible can take the form of trading on issues that don’t matter to you, but matter more to the other person. Tradeoffs are a good negotiation strategy that can communicate flexibility, help drive the discussion towards agreements, and help both people explore and brainstorm whether they’re a fit for each other.
You’ve traded off aspects that don’t matter to you, and they have responded positively. Still, there’s some you’d like them to compromise on. If you’ve arrived at this crossroads in your negotiations, there are a couple of tips you should keep in mind to ensure that those compromises are fair, and will bring the conversation towards agreement.
If you do concede on price or on other aspects of your business, concessions are best when they’re done in installments. Research shows that the same concession broken up into two concessions (ie. $10,000 vs $8000 then $2,000), is more likely to be received positively. I’ll also add, that if you do compromise, to not do so too quickly in the negotiation, as that may communicate that your initial ask was not reasonable.
Additionally, concessions should be labeled and communicated. Compromises should not come at a substantial cost to you, and be used to help you close a deal. To ensure that is more likely to happen, communicate to the other the fact that you compromised, and the costs associated with that compromise to you. Doing so will encourage the other to reciprocate, and guide the conversation closer towards agreement.