Selling a business is a delicate process that requires careful planning, insight into negotiation tactics, and a strong strategy to ensure a fair deal. One of the key strategies employed by potential buyers is offer sequencing—a method that can put sellers at a disadvantage if they are unaware of how it works. By understanding this technique, business owners can better protect their interests during negotiations and secure a deal that accurately reflects the value of their company.
What is Offer Sequencing?
Offer sequencing refers to a negotiation approach where a buyer presents a series of offers in a specific order, typically starting with a low bid and gradually increasing the amount. This tactic is designed to anchor the seller’s expectations lower than the true value of the business, making the final offer seem more appealing despite it often being in the buyer’s favor.
Why Do Buyers Use Offer Sequencing?
Buyers use offer sequencing for several reasons:
Anchoring Effect: The initial low offer sets the seller’s expectations, making any subsequent offers feel more attractive by comparison.
Pressure Tactics: A slow, incremental increase in offers can pressure the seller to accept quickly, out of fear of losing the deal.
Testing Boundaries: This method helps buyers assess the seller’s flexibility and willingness to negotiate on price.
The Risks for Sellers
If sellers are unaware of offer sequencing, they may face several risks:
Undervaluation: They may settle for less than the true value of the business due to the psychological effect of the low opening offer.
Lost Leverage: A lack of awareness about this tactic can cause sellers to lose negotiation power, potentially agreeing to unfavorable terms too early.
Rushed Decisions: The pressure of incremental increases may lead sellers to make hasty decisions, foregoing a thorough evaluation of each offer.
How Understanding Offer Sequencing Helps Sellers
When business owners understand how offer sequencing works, they are in a better position to make informed decisions:
Informed Decisions: Sellers can avoid falling into undervaluation traps and approach each offer with a clear perspective.
Effective Counters: Knowledge of the tactic enables sellers to respond strategically, ensuring that their business’s value is fully represented in the negotiations.
Competitive Tension: By engaging multiple buyers, sellers can create a competitive environment, which mitigates the effects of offer sequencing and can drive up the sale price.
Strategies to Counter Offer Sequencing
Business owners can protect themselves from offer sequencing by employing the following strategies:
Establish a Baseline Valuation: Before negotiations begin, obtain an independent valuation of your business. This gives you a solid reference point and helps you resist low anchor offers.
Engage Multiple Buyers: Creating a competitive environment by involving multiple potential buyers helps dilute the impact of offer sequencing. More interest often leads to better offers.
Stay Informed: Educate yourself on common negotiation tactics. Being aware of strategies like offer sequencing will allow you to recognize them and prepare appropriate responses.
Retain Experienced Advisors: Having expert advisors on your team, particularly those experienced in business acquisitions, can provide critical insights and guidance on how to counter offer sequencing effectively.
Evaluate Offers Thoroughly: Take the time to assess each offer carefully, looking beyond the financials to consider the full terms and conditions. Avoid making rushed decisions.
Be Ready to Walk Away: If the offers do not meet your expectations, don’t be afraid to walk away. Settling for a deal below your business’s value is not worth the long-term consequences.
Understanding offer sequencing is vital for business owners looking to sell. By recognizing the strategy and preparing effectively, sellers can maintain leverage and secure a sale that reflects the true value of their business. Knowledge and preparation are the best defence against negotiation tactics that work against your interests.
For more advice, consider consulting with experienced business advisors who can help build a robust negotiation strategy tailored to your specific situation.
(Based on the article ‘Understanding Offer Sequencing: How To Protect Your Business Sale Negotiation’ published on Vexus.co.uk)
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