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business sales

Negotiation

Escalation or the Haircut – often a negotiation dirty play

July 24, 2014
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Often times in a negotiation the leverage changes from one party to another. Think about in business sales or buying a car, once the buyer tips their hand that they have chosen a certain deal, the sell side can sometimes be emboldened into applying what I feel is a dirty trick. Escalation.

What ever the excuse is, the seller (in this case) would raise the price or terms even though the deal had been agreed to. They often use an authority tactic, think about the car salesperson that goes back to the “managers office” and comes back with a slightly elevated monthly payment. Full of apologies that the deal they thought they could offer was expired, or misstated.

Dirty tactics include escalation or haircuts

Dirty tactics include escalation or haircuts

We also see the haircut tactic employed by the buy side. Imagine a buyer of a business under a contract that has a due diligence period contingency. The buyer then spends a couple of weeks crunching the numbers and announces they will not move forward due to some unforeseen liability or risk. They then renegotiate the price or terms. Sometimes an escalation or haircut can be legit. Often demand could change for a deal or a unforeseen risk could pop up unbeknownst to either party.

However, in my experience I often see this tactic used in bad faith and planned way in advance. I have even seen it used POST closing. Such as when people use an item and return it, taking advantage of retailers generous return policy. Or buyers that will refuse to pay earn-outs or notes just in order to renegotiate.

The best defense for this tactic is to have options. Be ready to walk from a deal at anytime. And to defend against post closing haircuts, have good paperwork and documentation in any deal! And have good legal and intermediary team.

Andy Cagnetta owns and operates Transworld Business Advisors. He joined the company as a sales associate and later purchased it. Transworld is an international franchise business and franchise brokerage, with thousands of businesses for sale and franchisees in the United States and Internationally.

Business Sales

The Seller Tsunami! It’s COMING! A wave of business sales so large, that the business sale marketplace will be incredibly active for years!

May 15, 2014
Seller Tsunami
Seller Tsunami

Seller Tsunami

The Seller Tsunami!  It’s COMING! A wave of business sales so large, that the business sale marketplace  will be incredibly active for years!

Why? Retiring baby boomers! Demographics (SME Research) dictate that up to two million businesses will be sold between the years of 2017-2020.

Currently, Bizbuysell.com reports approximately 8,000 business sales per year. Even if that number is four times under reported (which I think it may be) we are looking at a five to ten fold increase in the number of businesses sold. And, that is how many businesses are sold, not how many will TRY to sell.

What are the market implications of a seller tsunami?

• The market turns from a seller’s market which it is currently, into a
buyer’s market.

• Lower valuations due to increased competition for buyers.
In fact, some believe due to the shrinking workforce, there will be
a huge lack of skilled buyers in the marketplace.

• Incredible opportunity for buyers and companies that want
to acquire great businesses!

What can you do to if you plan to sell your business in the next 5-10 years?

Sell earlier than later. Start planning your exit now. Even if
you have to work a few years for the new buyer, it may be time to go. Talk to your advisors now!

• Expand your businesses sales and profits. Make more money and perhaps your value will increase more than the marketplace devaluation. Plus, the money you make in the meantime would counter the lost value.

• Be a part of the buying opportunity and acquire businesses through the tsunami. Eventually the marketplace will settle and you will have built a large profitable business, especially if you are on the young side of the boomer age bracket.

• Ignore it, and sell anyway. Hopefully you made your money running your business and the sale is gravy. Price any company right and it will sell in any market condition!

My goal in providing this information is not to scare you into selling now, but to really encourage you to start planning. Perhaps
the prediction of the tsunami may not come to pass, but it is hard to
deny the numbers and the market force of the boomers retiring.

I’m ready for the wave! Surf’s up!

Andy Cagnetta owns and operates Transworld Business Advisors.  He joined the company as a sales associate and later purchased it. Transworld is an international franchise business and franchise brokerage, with thousands of businesses for sale and franchisees in the United States and Internationally.