By Erin K. Tenner, attorney
Auto dealers are the ultimate negotiators, but what applies in negotiating for the sale of a car may or may not hold true when negotiating a buy/sell. Here are some tips to help you get the most out of negotiating a buy/sell:
- First and foremost, before even going into a negotiation, do your homework.
Make sure you know the standard multiples for the make or makes you want to buy or sell, the seller’s net profit – which starts with the financial statement but also requires evaluation of things that may not be on the financial statement, such as fair rental values for the area compared to rent being paid; the demographics of the market area and whether it is a growing area or a stagnant area natural barriers to customers in adjacent markets; and dealer performance compared to market potential. You need this information so you can decide how much goodwill you are willing to ask for, or pay for, the dealership.
- Second, find out what the other party’s needs are.
I cannot emphasize this enough. I was recently involved in a transaction that involved multiple sellers. I was representing the buyer. An issue arose that seemed like it was all about money. The issue had been tabled repeatedly, because there were many other issues to resolve and this one seemed like too big a hurdle to tackle, so everyone just kept tabling it. When push came to shove (and it always does eventually on issues like this) my client came to me and asked me what he should do. I told him to ask the seller what he wants. My client returned with a big smile on his face and said the issue was resolved.
What the seller really wanted and what he had been asking for were two different things. Once my client was able to figure out what the seller really wanted, it was easy to resolve the issue, because what he really wanted was something my client was more than willing to give. What he had been asking for was something my client had been unwilling to budge on.
- Third, stay focused on the goal.
There are going to be many opportunities to be distracted by problems during any negotiation. If you let your attention go to the problems instead of staying focused on the goal you lose sight of the solutions. Solutions will present themselves if you stay focused on the goal.
Staying focused on the goal will help you to think of questions that will help resolve the problems. The quality of your negotiations is going to depend in large part on the quality of the questions you ask. Einstein said that if he had to solve a problem that his life depended on solving, and he had only an hour to do it, he would spend 55 minutes coming up with the right question.
If my client, in the above example, had been focused on the problem he never would have asked the seller what he wanted. Sometimes it is hard to get a straight answer from someone about what they want, because even they don’t know. However, if you can figure out the right questions, the answer will solve the problem instantly.
- Fourth, pick your battles.
Don’t make everything an argument. Decide what is really important to you and let the rest go. Start with the things that could end up costing you the most.
- Fifth, don’t let the negotiations get stuck in the mud.
If there is an issue that is not getting resolved, let the other parties know you want to set it aside for the moment and come back to it. Resolve as much as you can. Come back to all the sticking points at the end. Once people have invested some time and know that most of the issues can be resolved it will be easier to get the sticking points resolved. Knowing everyone’s sticking points also makes clearer where compromises might be possible.
- Sixth, nip egos in the bud.
A negotiation should not be a competition. If you notice people getting into competitive mode you need to intervene. How? Kindly. Getting angry or insulting will likely exacerbate a big ego or competition problem.
Usually if someone is in competition mode they are feeling inadequate and are trying to prove to themselves and others that they are not inadequate. Don’t make it worse by insulting them. Remind the parties that the focus is getting the deal done. Stroking egos can sometimes be helpful, or can backfire if there is no truth in what you are saying.
Following these guidelines will help you get what you want out of your negotiations. Remember, you get more with honey….
Erin Tenner is an automotive attorney based in Los Angeles, Calif. If you need advice outside of California, she knows attorneys in all states who represent dealers. Ms. Tenner can be reached aterin@cardealerattorney.com or 818-707-8410.
