Negotiating the Purchase of a Business

What factors should I take into account when negotiating a business?

Purchasing an existing business can prove an excellent business venture. If you are planning to buy a business, you will need to negotiate the business price as well as the terms of the deal. To negotiate a fair price, it is important for the parties to calculate the business’ present and future worth. Valuing a business can prove rather complex, sometimes requiring an expert in the field.

To begin coming up with a valuation, you will want to determine the annual revenue of the business, its assets, and its tangible goods, then subtract the business’ debts. You will also need to consider the intangibles surrounding the business, such as its goodwill and customer loyalty. Below, our NYC business lawyers discuss some additional factors that a potential business buyer will want to consider when negotiating a price to buy an existing business.Comparable Business Sales

As the potential buyer, you will want to research other related business sales in an attempt to set a value on the business you are interested in purchasing. Determine what the rate has been for like businesses. For instance, has a related business sold for twice the annual revenue? Or three times the annual revenue? Knowledge of sales data in your field could help you to set a fair purchase price that should put you on track to succeed.

The Growth of the Business

The growth rate of the business should be considered in your offer. Take a look at the business’ sales in the past few years. Are they on the rise or the decline? Consider the seller’s financial projections and whether you agree with them. A business that has struggled in recent years might warrant a lower offer, while one projected to soar may justify coming in closer to asking.

What is Included in the Sale

You will want to consider the terms of the sale and what is included. Will the seller warranty any of the equipment? Will he or she stay to help in the transition? Consider all aspects of the sale in setting a valuation. Further take into account the seller’s reason for the sale. A seller who is selling out of financial need or for personal reasons might be more likely to accept a lower offer.

The Economy

The economy should be considered in any business purchase agreement. In a strong economy, the seller is more likely to hold out for a higher asking price. If the economy is soft, the seller might accept your lower bid. Consult with your business attorney for their help in negotiating your ideal business purchase.