In the last few weeks, I was presented with an opportunity to purchase a book of business from another firm. They perform similar functions to mine, and it was a logical fit. The seller reached out to me on a Saturday, asked if I was interested, I said absolutely, and asked the seller to send me the details. It was hard for me to evaluate the opportunity without knowing some specifics; what specifically came with the “book of business,” what revenue did this entail, who’s fulfilling all the details of the current engagements, what would the “transition period” look like, what obligations also came along with the deal. Regardless, like any good entrepreneur, I said I was interested. Who wouldn’t be “interested.”

The very next Monday morning, I got the details; 55 clients who had been clients of this firm for over 4 years, approximately $800K in annual revenue, several employees who did most of the work for these clients, and no obligations or assumptions of liabilities. Seemed like a pretty straightforward presentation and opportunity.

When we started talking about the money, things got interesting. To be frank, I had only ever purchased 2 books of business on my own. I have helped dozens of clients do this, but it’s always different when it’s your own business and the decision is all up to you. Time to put on the big boy pants and get down to business.

The seller wanted to get what equated to 1 year of estimated profit on the contracts in a very reasonable payout structure; 10% at closing with monthly payments until the total amount of the purchase price was paid out.

The way the profit was calculated was exactly what you’d think you’d get from another business consulting / financial services oriented firm; it was precise, great details, and very specific. There wasn’t too much else I wanted to know on the financial side. I did want to better understand some specifics about the transition, the employees, the potential retention issues, the work setups, any promises that have been made, but the financial side made sense. In fact, I thought I was getting a pretty good deal. 1 year of estimated profit is a helluva deal in my mind. According to this article about valuing a professional services firms (the closest thing to a consulting firm like mine and the sellers’ is an accounting firm), most firms sell for either 1.3x to 2.2x top line revenue or 6x to 8x earnings before interest, taxes, depreciation, and amortization (EBITDA). But, who was I to argue with a seller who admittedly was giving me a helluva deal.

The seller’s one requirement was this transaction needed to be done super quick. From the Saturday I was first contacted about this to the closing date that the seller wanted to conduct the transaction was 2 weeks. TWO WEEKS from learning about a game changing opportunity to writing a very large check is tough.

Since I knew this was an excellent opportunity, my only question on the phone when negotiating the purchase price / details was this, “[Seller], this opportunity is going to be an interesting one to pull off in such short order. How much do I need to pay you in a lump sum at closing so that you won’t talk to any other potential buyers?” The seller hesitated for a second. This is when I knew I had struck a chord. The seller likely didn’t anticipate having the option of a lump sum at closing. The seller was expecting me to want to do the payment option as that’s how most financial minded professionals think. Maybe I watch too much Shark Tank and want to be like Mark Cuban; he is disliked by the other sharks for pulling a similar move when identifying a great deal and then demanding the contestant to make a decision without hearing from other sharks.

Longest pause of my life. Felt like I was hanging on the edge of a cliff and could fall at any moment. I really wanted this deal and I knew I had to get the close on the call. If this seller shopped the deal around, likely other deals, perhaps with more money or better situations, would arise. Finally, the seller came back. “I’d settle for the entire purchase price minus 10% paid at closing.” 

WOW! I couldn’t believe it. I didn’t mention any discounts. I didn’t say I couldn’t afford the purchase price. I just knew I wanted the seller to stop talking to other potential buyers. The (new) offer was even better! 90% of annual estimated profits? Unbelievable.

To tell you just how amazing this offer is, think about it this way; if you could invest in a potentially long-lasting engagement with 55 clients (who, oh by the way, know LOTS of other business owners and will undoubtedly grow their business while relying on my firm for additional needs) and the investment will be paid back in 12 months with everything beyond that being “profit” in the transaction, you should do that deal 100 times out of 100. 

I didn’t hesitate. I confidently said, “That’s a very generous offer. I accept. I’ll have my team make sure the funds are ready when we close next week.” We ended the call with all the expected pleasantries and agreed to connect the following day after my attorney drafted a purchase agreement and the seller had a chance to review it. 

What a rush. I had just made one of the biggest deals of my life, on a single phone call, and felt like I was on top of the world. I called my banker to see about the process of tapping into my emergency funds and the funds were wired into my bank account. I was ready. I felt like Mark Cuban was right next to me patting me on the back saying, “Way to go kid. One day, you’ll be negotiating Shark Tank deals right alongside me.” 

The purchase agreement was sent as promised but the seller dodged my follow up call. Not the end of the world; sometimes attorneys take time to review documents and perhaps the seller’s attorney just didn’t have time to look at it yet. It wasn’t that long; maybe 2 pages tops. But, I didn’t think much of it. We texted a little bit in the following days.

Me – “Still on track for closing next week?”

Seller – “Yep! Looking forward to it! Really happy this worked out.”

Me – “I have the conference room reserved and I’m looking at the cashier’s check for the amount we agreed to. Can’t wait to help your clients with their businesses.”

Seller – “Great! I know they’ll be in great hands.”

Day before we’re supposed to meet, we still hadn’t connected about the purchase agreement. Which was becoming a little odd. If I was the seller, and I was presented with a purchase agreement drafted by the other side of a negotiation, I’d at least want to make sure both parties were on the same page if not tweak some of the language so it’s exactly what we’re agreeing to. I get a text from the seller around 3:00 PM the day before we’re supposed to meet. “Have time for a quick chat?” Uh oh. This doesn’t sound good. I set aside my anxiety and remind myself that we had agreed to the terms of a deal and we’ll likely need to button up some of the language and it shouldn’t be a big deal.

I responded, “Sure.” Then the seller called. Me – “Hello.” 

Seller – “I’m so impressed with your business. I want you to know that. Really Matt. What you’ve built is amazing. I know you’re going to do BIG things.” My mind was racing. This is not how I was expecting this conversation to start and I was bracing myself for the let down; you don’t butter someone up like this unless you’re going to crush them.

Seller – “I’ve done a lot of soul searching in the last, well 24 hours, and I just can’t sell the book of business to you.” I still haven’t said anything except for, ‘hello.’ The seller continued, “I was approached by another firm.” Really!? “I need you to know it’s not about the money.” I thought we had agreed to exactly what the seller asked for?! “This other firm seems like a better fit for my clients. I think you’re great. I want you to know that. You’ve been nothing by professional and I’m super impressed with what you’ve built. I think I’m helping you avoid a big headache. Anyway, I’ll be selling the book of business to this other firm tomorrow. Not yours.”

Long awkward pause. I was SHOCKED. I was looking at emails as they come pouring in as they usually do, the room spinning, my mouth suddenly very dry, my hands sweating, my eyes couldn’t focus. I reached over to my folder where I had printed out the purchase agreement and had the cashier’s check ready for the meeting I was apparently not going to have anymore. The check seemed to be fuzzy. I couldn’t focus my eyes. My mind was racing faster than it had ever been before. What was I listening to? Someone extolling me. Filling my ears with meaningless congratulatories. Actually saying they were doing ME a favor? Huh? 

The seller went on to say, “Matt. I’m really hoping you can realize that this is a good thing for you. I’m saving you and one day you’ll thank me.” The call with the seller saying something I’ll NEVER forget; “I know we had an agreement, but I gotta go with my gut.”

I didn’t say anything and the line went dead. “We had an agreement,” is right. A verbal agreement among professionals. A gentleman’s’ agreement of sorts. I had a check sitting in front of me for a helluva lot of money that I was expecting to hand over to this person in 24 hours.

I tell you this story for several reasons. It’s not to brag, put anyone down, reveal who the seller is, or “throw shade” (as the cool kids say). It’s to try and help others in negotiations. You have to always maintain your integrity when negotiating. Always. If you don’t have integrity, you have nothing. You won’t be successful. You won’t get jobs done. You won’t have good employees. You won’t make successful leaders. You just won’t. You have to maintain your integrity always. Henry Kravis, American businessman, investor, and philanthropist, says it best; “If you don’t have integrity, you have NOTHING. You can’t buy it. You can have all the money in the world, but if you are not a more and ethical person, you really have nothing.” 

But, how does one maintain integrity in negotiations? Honestly, I negotiate business deals ALL DAY. All day. People are trying to either enter into a new engagement, change an existing one, get out of one, get lenders/investors to give them money, negotiate terms with vendors, etc. I see it all. How people conduct themselves during these negotiations, how they think, what they suggest, what they’re willing to do/give up/cave to really tells a lot about their character and their integrity. Here’s how to maintain integrity in negotiations:

Negotiating in Good Faith

Negotiating in good faith, according to this Harvard.edu’s article, is when both parties deal honestly and fairly with one another so that each party will receive the benefits of the negotiated contract. 

“In 1933, the New York Court of Appeals ruled that every legal contract contains an ‘implied covenant that neither party shall do anything, which will have the effect of destroying or injuring the right of the other party, to receive the fruits of the contract.’”

In more practical terms, when two parties are negotiating terms of a contract, even if an issue arises (which oftentimes is the case) both parties should aim to maintain the original “heart of the matter.” Pettiness, specificity in dealings, and (in a much more unsettling way) breaching of contracts may arise, but it’s important to operate and negotiate in good faith by keeping the major original terms intact.

Negotiating in good faith adds tremendous value to the negotiation as a whole. It helps the other side see that you’re being reasonable and respectful. It shows that you have integrity and you’re interested in a “win-win” situation which was the original intention of the contract.

Negotiating in Bad Faith

Quite the opposite of negotiating in good faith; is negotiating in bad faith. This article from BakersLaw.com references additional details. To summarize, the simplest way to identify someone negotiating in bad faith is that they are either not actually interested in reaching an agreement or they are hiding significant material facts.

Oftentimes, “actions are louder than words.” Even if someone says, “Yeah, I’m working on the agreement.” But then they go off and do something else that doesn’t align, this is negotiating in bad faith. Verbally agreeing to terms, only to turn around and change the deal or call off the deal is definitely negotiating in bad faith. If there’s uncertainty in a deal, don’t agree! Be honest. Tell the other party, “Hey, I’d like to take some time to really think about this deal. I’m not ready to commit.” That’s operating in good faith which goes a lot further than verbally agreeing only to cancel a deal later.

Keeping Business Objectives Aligned

Both parties want something out of a deal. That’s why they’re entering into an engagement. Usually, what both parties are agreeing to in principle is part of the initial part of the contract; the “whereas section.” This is what both parties are saying, “Yes. I want this.” Then, the rest of the contract breaks it down so there’s little ambiguity. This Harvard Law School article says that goal setting before you get to the bargaining table is critically important to the success of the negotiations.

As the engagement is fulfilled, both parties have obligations to meet. Oftentimes, one side just needs to provide payment. The other side is actually delivering a service or a good. Either way, as the engagement progresses towards completion, it’s important to keep business objectives aligned. What did both parties want to get out of the deal? Are you working towards this? 

If you don’t have a written agreement, perhaps you’re working towards one or you have a verbal agreement. In this case, you’ll need to be mindful of what the business objectives are of each party and leverage this to get to a mutually beneficial agreement. Perhaps it’s not about the total money received, maybe it’s about when the money gets paid. Perhaps it’s not about 

Give and Take

Negotiating is definitely an art. In this article on Fast Company by Corey Weiner, COO of Jun Group, his opening lines agree; “Negotiation is more of an art than a skill. By its nature, negotiating is uncomfortable, and it often requires you to act as an armchair psychologist, actuary, or field general–sometimes simultaneously.” That’s a tall order! When you give and take, it’s similar to cat and mouse. What do you need to give up to get what you want? Inevitably, you’ll be trading time, resources, and knowledge. You do have to give a little to get a little. You may not need to give first, or demand first. But, eventually, you’ll be trading and participating in the give and take is another step towards negotiating in good faith.

If you’re feeling the pressure to make an initial offer, make sure you’re not coming in with what you’re willing to settle for. According to the same Fast Company article, they advise “Bid First and Bid Extreme.” Eventually, you’re going to meet in the middle, but you’ll need to ensure that you start high. Then, don’t be afraid of making concessions as long as you’re moving towards the mutually aligned business objectives of the original deal.

Involving a Third Party

When two sides are too far apart, too emotional, or too unwilling to negotiate, they may seek out a third party negotiator. This person or firm should be impartial and experienced in the specific types of negotiations you’re involved with. In Strategic Voyages’ world, we discuss lending arrangements, business dealings, contract negotiations, and other financial aspects of negotiations often. When we do this on behalf of our clients, we have to remain detached. In our article, 7 Telltale Signs You’re Ready For An Outsourced CFO, we discuss the importance of being detached as a value add to the strategic insight brought to the situation that needs resolving.

When hiring an attorney to help you negotiate a business deal, keep in mind that this could very quickly escalate the emotionality of the other party as they may feel “out gunned” by an attorney. However, if you can get both sides to agree to an arbitrator or mediator, who can help both sides come to an agreement, then you’ll likely avoid one side feeling like they got ambushed. Involving an attorney means you’re applying pressure which could “set off” the other side.

Leaving your Emotions at the Door

Mixing emotions and business is like drinking and driving. Bad idea! This Harvard Business Review article says,

“You need to sense the first stirrings of your own feelings so that you don’t tense up, tune out, or explode.” The article goes on to provide some very contradictory, yet helpful advice. The article says “Emotion plays a positive role in decision making, creativity, and relationship building—all key factors in reaching agreement.”

When you can leverage emotions properly, you can achieve the desired outcome. However, this is a delicate skill to master. Pushing too hard into emotionality could cause the other party to shut down or explode. Similarly, addressing their emotions, accepting them, showing empathy, and guiding the other party into a mutual solution is a successful application of emotions.

Applying Pressure

As a second, third or even last resort, applying pressure becomes necessary. It’s very important to try and reduce pressure in negotiations whenever possible. However, sometimes, it’s unavoidable. Applying pressure to the other side is necessary when sides aren’t coming together. This could be a gentle reminder of the respective business objectives. It could be a threatening letter from an attorney. It could be filing a lawsuit for breach of contract. All the various ways to apply pressure have different impacts and it’s important to choose carefully how hard you want to apply the pressure.

Before applying the pressure in negotiations, it’s important to realize the impact you’ll have should you choose to go down that road. Gentle reminders of a contractual obligation are not as serious as attorney’s letters. But once you send an email “reminding” someone of their obligations, you can’t unsend it. For a strong-minded individual, it will not be a big deal. For others, it may rattle their cage a bit. So, you want to be careful of the consequences and determine the level of pressure you want to apply while considering the likely outcome.

Trying to negotiate a business agreement? A contract? Scared of attorneys? I’m interested in making business arrangements work for my clients. We’re Results Driven and Client Focused. Meaning, we want to ensure our clients desired and goals are met through the engagement with Strategic Voyages. While we can’t provide legal advice (we’re not attorneys), providing negotiating / business advice in a meaningful way might be a less expensive option while setting you up for success. We tend to be very holistic in our thought process while working with clients. 

Give us a call today 847-902-9405 or contact us here. Free consultations are a must. 

While conducting research for this article, my team found some helpful resources in negotiations on the Harvard Business Review site:

• Negotiation Skills for Win-Win Negotiations
• Deception in Negotiation
• Top 10 Negotiation Skills You Must Learn to Succeed
• Deceptive Tactics in Negotiation: How to Ward Them Off
• Negotiation Skills: Value Creation Resources