Breaking It Down: The Eighth of the Ten Commandments of Business Acquisitions
Our Ten Commandments of Business Acquisitions has been so popular that we have decided to break it down. To briefly discuss each of the Ten Commandments, and its import and impact.
The Eighth Commandment: "Offer a Fair Price"
A prospective buyer should attempt at the outset to offer a fair price for the target business.
It makes no sense to insult the owner/ seller by making an offer for the business that is unconscionably low.
While it is advisable to leave "room to move" when making an offer and negotiating for the purchase of a business, if the prospective buyer low balls the offer, the owner/ seller might reject him or her or it as a prospective buyer, concluding that a prospective buyer who makes a low ball offer is not serious and is not to be taken seriously.
Relatively few acquisition opportunities can be "stolen" and in general an acquisition opportunity is not worth pursuing unless you are prepared to offer a purchase price that is within the range of reasonableness.
Conversely, a prospective buyer who offers an inflated price, thinking he or she or it can later whittle it away, may find that he or she or it cannot get the anticipated price concessions and therefore ends up overpaying for the business. At the very least, aggressively re-negotiating the price after a letter of intent is signed will poison the atmosphere, undermine the acquisition momentum and might likely kill the deal altogether.
It is important to develop a relationship of confidence and trust with the owner/ seller, and a great way to accomplish that is to start by making a fair offer. There is no substitute for honestly and integrity in any business negotiation.