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Four Tips For Dealing With a Challenging Seller During Negotiations
By Quiet Light
Any person who has bought more than a handful of businesses has undoubtedly run into a challenging seller. You probably know the type of seller I am referring to. They are hesitant to hand over requested information, they make very strong (and sometimes seemingly nonsensical) demands, they may be unsure about continuing with an accepted offer, and yet they push for a faster and faster closing.
Working with a challenging seller can be extraordinarily stressful – believe me, I’ve worked with my share of challenging clients. But with a little understanding, and following a couple of simple principles, you can bring most deals with challenging sellers to a successful (and happy) closing.
Four Reasons Why You May Encounter a Challenging Seller
Most challenging sellers have no intention of being difficult. In fact, in hundreds upon hundreds of deals I’ve personally managed, I struggle to think of any client who was genuinely a difficult person.
But when a person decides to sell an asset as valuable – and quite often as personal – as the business they built, something happens. They become defensive and sometimes aggressively cautious. They want to protect the asset they’ve built.
Keep in mind a few generalities with these sellers. First, most sellers are not repeat sellers. In other words, most sellers are navigating a complex process for the very first time. And even those who may have sold a few businesses in the past are still running into new choices and decisions.
Second, while the transaction may not be personal for you, it probably is for the seller. We can often fall into the trap of seeing a business simply as a collection of assets which translate into revenues and expenses. What we don’t often see is the owner’s personal enthusiasm and investment that went into the business when they started it. For many sellers, selling their business is akin to selling a part of their identity.
Most sellers are more risk-averse than buyers. If you are actively looking to buy an Internet business, you are already demonstrating some capacity for taking risks. Many sellers have much less risk tolerance than you. So even though buyers tend to take on more risk in a transaction, most of the time you have a greater capacity for risk.
The result is that the seller may feel far more uncomfortable than you. Proof of this is a buyer is often willing to spend six or seven figures to buy something that the seller established with far less invested capital).
Finally, some sellers are simply paranoid that, by revealing details to a prospective buyer, their idea or “secret sauce” may be stolen. Though this is uncommon, and although a seller has plenty of recourse should a buyer do this, we have seen a few instances of dishonest buyers who directly violate their agreements with us. Sellers aren’t completely unreasonable for being cautious.
These reasons don’t necessarily justify the behavior of some sellers. But our goal isn’t to justify nor accuse sellers of bad behavior. Our goal is to figure out how to deal with a seller that is being challenging. Sometimes just knowing what is happening in their head can help us navigate an effective strategy.
With that in mind, here are three general principles I use when working with challenging sellers (and buyers, for that matter).
Tip One: Never Draw a Line
It is said that before the battle of the Alamo, Colonel William Travis gathered his men together and informed them that defeat was nearly certain. After giving this somber news, his men looked to him for his instruction, but rather than sound the surrender, he drew his battle sword showing that he would choose death over surrender. He then drew a line in the sand and asked for volunteers who were willing to die at that battle to cross the line. All but one soldier joined him on that side of the line (Moses Rose was the only defector, and received the inglorious nickname of “Chicken of the Siege”).
Colonel Travis’s gesture was certainly heroic, dramatic, and the stuff of legend. But we aren’t trying to be heroic in buying a business, we are simply trying to close a deal. Besides, heroism and recklessness are closely related, often being distinguished only by the result of the action.
Lines Beget More Lines
Drawing a line in the sand usually comes across as heavy-handed. If we keep in mind that most sellers progress through the sales process somewhat tentatively (because they have not navigated the process frequently if ever), being heavy-handed typically results in your seller demonstrating that they can exercise their own will as well.
Put more simply – drawing a line in the sand usually causes a seller to draw their own line. This leaves you with two people who have set up “uncrossable” boundaries, and it effectively kills any hope of a deal.
Tip Two: Make Guidelines Clear
Advising you to not draw lines could be misinterpreted to mean you should leave every boundary and non-negotiable item as unstated. But this is not the case. One of the single most important tenets of effective negotiation is to make your goals, requirements, and expectations extraordinarily clear from the beginning.
There is nothing more frustrating for a seller than “moving goalposts”. We regularly preach to our sellers the importance of not surprising a buyer in due diligence with information that our client should have disclosed earlier. Well, the same holds true for buyers – don’t surprise a seller with new requests half-way through due diligence.
Most sellers are naturally somewhat suspicious of buyers. Surprising a seller during due diligence is a good way to confirm – rightly or wrongly – those suspicions.
What To Do When You Need More Information
But obviously there are times when you need to make additional due diligence requests. Without knowing everything about the business, it is likely that you will find something in your initial due diligence that requires further investigation. So what then?
Here are a few tips to follow:
- Spend More Time On Your Initial Due Diligence List. Presenting a seller with a full due diligence list upfront is a great tool for managing expectations. I even recommend tiering your due diligence list into phases to make it less daunting for a seller. The easiest time to make a request of a seller is upfront, at the time of the offer. Take a little more time with your due diligence list and be as comprehensive as you can.
- Give Timelines (& Stick To Them). Keep your seller informed on how close you are to being completed with due diligence. If the goalposts have moved, be honest, but let the seller know that they are still there.
- Discuss Discrepancies. Doing due diligence is difficult as you attempt to understand someone else’s business through their record-keeping. When you find a discrepancy (and you likely will), don’t necessarily assume the worst, but bring it to the seller in a non-accusatory manner. Say something like “I am having trouble recreating this month of financials and was wondering if you can help me with this. Here’s what I’ve got.”
I’ll admit that advising you to communicate clearly is easy and common advice to give, but that doesn’t diminish its importance. Always keep in mind these three principles: communicate clearly, communicate early, and communicate often.
Tip Three: Work With The Broker, Not Against
If you have the benefit of working with a broker or intermediary advisor, take advantage of that relationship. One of their many roles is to act as a buffer in addition to a more neutral guide. This is especially useful when negotiations become difficult as the advisor can act as a level-headed 3rd party.
If you find yourself making reasonable requests of your seller, and your seller is challenging those requests, chances are strong that you are not the only person who is frustrated. The broker’s goal is the same as yours: to try and bring the transaction to a close and to work through unreasonable objections.
Due to this, keep your frustrations with the transaction separate from the broker (unless the broker is the actual cause of the frustrations). Most of the time, the broker will have an advantage in working with the seller.
Consider the following:
- The Seller Chose the Broker. A seller doesn’t necessarily get to “choose” you – they choose your offer. As a result, you need to work to gain the seller’s trust. The broker, on the other hand, has largely gained the sellers trust – and had that validated – the moment the seller agreed to retain the broker.
- Experience. You may have bought a dozen businesses, or even two dozen businesses. That is extremely valuable experience. But despite that experience, it is hard to stand that up to a broker who likely has worked with hundreds, if not thousands of clients and potential clients over the years.
- Less at Stake. A broker has proportionately less at stake than both you and the seller. The broker has less to gain and less to risk. Because of this, they often have a much clearer understanding of what needs to happen in the transaction.
Not all brokers are good or trustworthy, and there are some brokers whom you should be vary wary of. That said, there is always room to try and work cooperatively with the broker.
Your goal is a closed transaction. Take stock of the assets you have that will help you get there, and use them accordingly.
Tip Four: Be Willing To Walk Away
The last tip I would offer for dealing with a challenging seller is to simply be willing to walk away if the situation calls for it. There will be more opportunities, and honestly, the vast majority of sellers are really quite reasonable and easy to work with.
Walking away from a deal can be very hard to do, especially if you found yourself excited, or financially invested, in it. Finding that right acquisition can take a very long time, especially for cautious buyers, and when the only real impediment seems to be the seller, it can be tempting to try and push through that and just close the deal.
Don’t get me wrong, you should always try to save a deal when a seller becomes challenging to deal with. Using the tips above can go a long way in repairing a strained negotiation. But when your efforts continually fail, take that as a definitive sign that you should simply wait for a new opportunity.
What Are Your Tips For Dealing With a Challenging Seller?
What about you? What tips have you used to work with challenging sellers? Or, do you have a story of a challenging seller that you just couldn’t work with?