How to Make an Offer Without Insulting the Seller

Making an offer on a business is not quite like making an offer on a house. There is usually more emotion involved, more moving parts, and far more opportunity for someone to take a number personally. A seller may have spent 20 or 30 years building the business you are attempting to buy. So while negotiating is expected, there is a difference between making a reasonable lower offer and throwing out a number that makes the seller wonder why they agreed to meet you in the first place.

As a business broker, I am all for negotiating. Buyers should protect their interests and should not pay more than they believe a business is worth. But if your goal is actually to buy the business, your opening offer needs to leave room for a productive conversation.

Understand What You Are Buying Before You Start Negotiating

Before deciding what to offer, understand how the asking price was determined.

Look at the cash flow, assets, industry, customer concentration, lease, employees, growth trends, and other factors that affect value. If the business is priced based on $300,000 in seller's discretionary earnings and you are making your offer based solely on the value of the furniture and equipment, you and the seller are probably not having the same conversation.

A lower offer is much easier to discuss when there is a clear reason behind it. For example, perhaps the business needs a significant equipment investment. Maybe revenue has declined for two years. Perhaps the lease terms create risk for a new owner. Those are legitimate points to consider.

"I just want to see how low they will go" is less compelling.

Remember That Sellers Are Human

A buyer may see revenue, equipment, contracts, and cash flow. The seller often sees years of missed vacations, late nights, difficult customers, great employees, and a business that supported their family.

That does not mean you should overpay because the seller is emotionally attached to the company. It does mean that some diplomacy goes a long way. I have seen buyers make offers that could potentially have worked financially, but the delivery immediately put the seller on the defensive. Once that happens, negotiations become much harder.

You are not only negotiating price. You are establishing the tone of a relationship that may continue through due diligence, closing, training, and possibly seller financing. Starting that relationship by telling the seller, directly or indirectly, that their life's work is worth half of what they think it is rarely helps.

If You Are Offering Less, Explain Why

There is nothing inherently insulting about an offer below asking price. The key is whether the offer makes sense.

If you believe the business is worth less than the asking price, give your broker enough information to explain your reasoning. Perhaps your lender requires a different structure. Maybe you are concerned about a particular financial trend. You might need additional working capital after closing, which affects the cash you can put toward the purchase.

A thoughtful explanation can turn what initially looks like a low offer into the beginning of a negotiation. An unexplained number often just looks like a lowball.

Look at More Than the Purchase Price

One mistake buyers make is focusing entirely on the headline number. Business deals have many negotiable pieces, including the down payment, seller financing, training period, working capital, inventory, closing date, noncompete terms, and sometimes the allocation of the purchase price.

A seller may be less flexible on price but willing to offer favorable financing. Another seller may want a clean exit and prefer a lower cash offer over a higher offer with complicated contingencies.

Before assuming there is no deal, look at the entire structure. Sometimes the difference between a buyer and seller is not nearly as large as it appears when you only look at the purchase price.

Do Not Negotiate Against Yourself

On the other end of the spectrum, buyers sometimes become so worried about offending the seller that they are afraid to negotiate at all. You are allowed to make an offer.

If you have reviewed the information and believe a different price or structure is appropriate, say so. A professional seller expects some negotiation.

The goal is not to make the seller thrilled with every term in your first offer. If they are absolutely delighted, you may want to check whether you accidentally offered too much. The goal is to put forward an offer serious enough that both sides want to keep talking.

Ask Yourself One Question Before Submitting the Offer

Before sending an offer, ask yourself:

If the seller says yes, am I prepared to move forward?

If the answer is no, you may not be making an offer. You may simply be testing the seller. There is nothing wrong with negotiating aggressively when the facts support it, but a serious offer should come from a serious buyer.

Most successful business transactions involve some give and take. Neither side gets absolutely everything they want, but both sides get enough to feel comfortable moving forward. That is really the objective.

You do not have to flatter the seller. You do not have to agree with the asking price. And you certainly do not have to avoid negotiating.

Just remember that the best offer is not necessarily the lowest number you can put on paper.

It is the offer that gives you room to negotiate while still keeping the seller at the table.