So welcome back to another episode of the business brothers podcast. My name is Purdeep Sangha and I'm Harjeet Sangha.

And we're the business brothers one, right?

I mean, you'd hope we'd get one

Perfectly master before the end of the year, but we're gonna have to wait until next year,

Maybe one a season. First, I want to thank you for listening into this podcast. Wouldn't expect the growth that we did of the number of listeners and the amount of episodes that you're listening to. So thank you so much because it's your support that really drives us to continue to do these episodes and actually try to provide as much value as we can to the business community, especially for the family business owners, the partnerships, the independent business owners out there for you, the entrepreneur, the business owner. That's what we're here to do is hopefully give you a little bit of tidbits of information, insights, some systems, some strategies to make your lives a little bit better. And today we're going to be talking about negotiating that deal. So when it comes to whether you're on the buying side or the selling side, what are some of the key elements that you are thinking about or going through or negotiating when it comes to let's just say a good deal because that's ultimately what we want to help you do is create a good deal. Not necessarily just any deal, because any deal could lead to a bad deal. So harsh and I are just going to go and have some conversations about that. So stay tuned. You're going to listen to, to the entire episode here. So arch, what are your thoughts just in general about negotiating a deal? Yeah, I think

Negotiation is one thing that most people have a very uncomfortable relationship with. There's this perception that when you go into negotiation, the other side is trying to screw you or trying to get the best of you and take majority of the pie. And I think that's a common misconception. I think if we can look at it in terms of how can we have a win-win situation, how can we increase the value of the pie? I think if we can look at that framework instead, then you'll come out, you know, out of a negotiation with, I'd say better prospects and better feeling about the confidence that, that you both were able to attract value and share. And it as equally,

Yeah, you touched on a really good point, their hearts because negotiation just for, even outside of the business world, it can be a little bit daunting for people. People don't want to get into negotiation because there's a fear of conflict. And that is a challenge for a lot of people. A lot of us avoid that. And then we have this perception that if you're a good negotiator or good at making deals, you're kind of a shark. And that's not the case. I think from my personal experience, a good deal-maker good negotiator is someone that thinks about, okay, what is the win-win? And because ultimately, if you try to go in with this shark attitude, I think you're going to end up losing, not that there aren't business people out there that are extremely successful at negotiating deals and they're able to strip the other, have their pants and their shirt and their underwear.

We know that that that's true, but I don't know if that's the best way of doing it, because if you're going to continue to make deals, you want to have a good reputation. No one wants to negotiate with someone that they know is a shark. So I think going in with good intentions is important. And I think that's where one of the main elements is if you're looking to have basically a one-sided deal, meaning you're able to get something super cheap or add a discount. I don't think that's the best strategy to take because a you're looking for something that may not fit within your value structure. And what I mean by that is if you're going to buy a business or sell business and people are doing the proper due diligence, no one's going to do a fire sale unless they absolutely have to. So if you're looking for a fire sale, you might have to look for a number of deals before you actually get one, but you might not. You might miss out on those good deals that can help you build a good business. Yeah,

It's a great point. I think one that we often forget too, that if you negotiate a very respectable deal, that there could be other opportunities down the road for, for both sides, right. For further introductions as well. So very valid point. I mean, obviously you want to get someone that works well for you, but in the instance of keeping a good reputation, I think there's a lot of that that can be done going forward.

Sure. And a big part of that is a risk right? Passing on risk back and forth as well because the art of negotiation, isn't just about value because that is what both parties are getting. But what both parties are also trying to do, especially in a business negotiation, because the time period could be extended, it could be three months or it could be even three years depends on the size of the business and where the businesses are at. But each party is trying to, let's just say consciously, or maybe even unconsciously trying to push the risk on or more of the risk onto the other party. And that that's a bigger challenge because when it comes to negotiating the terms, where do you find that balance? Because if the terms are really around the risk management side, I think personally, yeah.

Yeah. That's a very valid point. I mean, when we look at that from a fundamental perspective of, of valuation, that's where we kind of assess how much of that price is encompassing, that the risk element and there's ways that you can kind of decrease some of that risk element and that can kind of come the negotiation. Of course, if you're on the selling side, you probably want your cash. Cash is king and you want it quicker rather than later. So they have their own incentives to get that, that purchase agreement sooner and have it fully upfront. But if you're looking at it from the acquirer side, they may want the seller to stay on. So if there is kind of this helping period of transition from, from one seller to, to the buyer, I mean, that can decrease the element of risks because now kind of have this tie-in factor, right? There's an incentive to stay on. You can build an earn outs as well. So those are things that we can look at, but of course you mean that's, I think a bulk of the negotiation is where can you find the transfer of the risk, but there's, there's ways around that.

Yeah. And that just comes to the overall points for me, the things that stand out for me when it comes to, okay, what makes a good deal. And from my perspective, this is what makes a good deal. Obviously the price is, is important. You want to make sure that the price aligns with the value that you're trying to get out of the deal, but also the structure of the deal. And that comes through the points that you're talking about. Is it an earn out, is there a cash element? What does that look like? But then there's also the tax implications implications and that's, that's a big thing. And, and also the regulations maybe for a private business, the regulations don't really come into play as much as the public, but there's still, you should be taking a look at the regulations that are involved because that can have an impact on how you negotiate and the structure of the deal. So just to recap on that price, value regulations tax, but most importantly, I think structure and harsh from your perspective in a negotiation, do you, do you think that the price is more contentious or the structure, or are there other elements that you think are more contentious when it comes to negotiation?

Yeah, I think those are, those are elements that are part of the discussion too. I think when you're looking at, in terms of what is the value, what is the interest of the other side? And I think too often we look at it in terms of monetary perspectives, but what we found out during COVID is there are a lot of business owners out there that just they're fatigued. They want out. And we've seen just a record number of M and a deals out there. And to them time is of value knowing that there's light at the end of the tunnel, that they don't have to continue slugging away, you know, in this kind of supply chain stricken world that we're in. So, I mean, apart from the elements that you, that he brought up, I mean, I think there's other elements you'd have to look at and really focus on what is the interest of the other side. That's the hardest part of negotiation is understanding what they're looking for. I mean, there's demands, but I think deeper than a demand, there's an underlying interest. And that's where I think the art of negotiation really comes into play. That's where you separate the experienced individuals from the beginners, because they're really able to focus on the interest of the other side and it's not always,

Hmm. That's a really good point because negotiation is a skill and it's an art and it's something that needs to be learned. I can just talk about from personal perspective. I, I was, I always shied away from negotiating. I always found it a challenge because I wanted to avoid that conflict, but the more I learned about negotiation and that it was a skill. And even more than that, just a conversation and hard, you touched on it before. It's really uncovering the other persons or other parties desires, wants. It's, it's really psychology at the end of end of the day. It's for me, it's less about business and it's more about the person in the psychology or the people involved when you can understand their motivations. As you talked about heart, you know, where they're at in terms of the life stages, frustration, all these other elements that are harping on the, maybe they're not, they don't have a good work-life balance and they're just tired of it, right?

Maybe they've created this business that is just too big for them and they don't feel like they can continue to grow at the pace that they're at. And interesting. That is a big fear for a lot of people that are a successful business. I was talking to an entrepreneur last week, who they have a very successful family business, but one of the biggest fears that they have is it may become too it's at the pace of becoming too big for their expertise. So then what do they do? Do they hire out? Do they do other things, do they sell? And that's where, you know, all of these things are coming, but the personal perspective is a big element. But going back to my original point, though, it is a skill and harsh. What do you think people should do to buff up their skills of negotiation?

Well, I, you know, here's kind of over here, we've got a plug for, for our services. You know, the very first step is just having the right professionals in your, in your car, on your team. And that's having a good banker, having a good lawyer, having a good evaluator. Now, sometimes we do see accountants come in and play that role. But if you're looking for an objective, unbiased valuation opinion, then you want to look for a CPV. So from that perspective, that's kind of the start of the negotiation for, for each party. You want to know what is the range of price that you should be paying or should be offering for, for such an engagement or to, for an acquisition of a business. And that way it gives you more confidence of going in. I mean, there are certain industries where you can use rules of thumb, but I think for the most part, you want to be able to walk out of the negotiation and say, you know what? That was within our range and understand what the range of the other side could be as well. So for, from that perspective, I mean, that's a very first step. I think we touched upon that upon our last series, but from, from kind of building out your, your confidence, understand where the business is and where it can potentially go. And that's kind of, that's a lot of corporate finance work

Because what you just talked about having the right professionals really comes down to different perspectives and you want to be able to hit the deal with a different perspective, as many perspectives as you can, so that you can a find the unseen opportunities as we discussed in previous episodes, but also find the risks that you may, that may be unknown to you. So I, I second that hard having the right people on your side. And there is something to be said about experience. There is something to be said about people who have gone through a number of transactions or negotiating deals prior to you doing it because wisdom there's, there's something to be said about experience, right? It goes back to that old adage where it's knowledge is one thing, but wisdom is something completely different. Like we can go on the internet and we can Google how to negotiate a deal.

All we want. And we can come up with a terms that we can come up with a strategy, but guess what, when you're in there making the deal, that's when the nerves start to get to you. Right. And I've experienced this where it's like, okay, you think you have a slam dunk and then it's something comes out of nowhere and it's just throws you off. And you're like, okay, what do I do here? You got to keep your composure. And sometimes that is one of the biggest things that can lead to negotiation or negotiating a good deal is keeping your composure. And I know myself sometimes when things don't go my way, my immediate reaction is kind of get this heated, heated feeling say, and how do I push through it? But sometimes just keeping calm and just keeping present is one of the best things that I could do. Just keeping in the moment, not making any rash decisions.

Yeah. And those are very important skills that, you know, they're easy to say and very hard to do, but I think there's the old saying in negotiation, he or she who cares the least usually wins the negotiation. So I think that comes down to the fundamental principle of not reacting or reacting less than the other party when it comes to negotiation. Then of course, there's probably going to be figures thrown around that may, you know, trigger a nerve or earthy or whatnot. And, you know, normally we, we show her reaction that in the boardroom or in the negotiating table. So it's very, very important vitally important that you don't react or react less than the other party. Cause it, you know, you can lead with your emotions in these things. That is one of the fundamental skill sets you need to be a good negotiator.

Yeah. And just off the top of my head in terms of three things that stand out for me, when it just comes to the psychological elements of negotiating, a good deal, these are three things that worked for me. First of all, talk less because the more talk or talking you do, the more information you divulged and some of that information isn't positive, or isn't working in your favor and it can actually work against you. So talking less and listening more is important. The second is asking questions because if you ask the right questions, you will actually get the right answers. You will get the answers that you're looking for. And plus you're going to uncover information that the other party has that a, you might not be aware of. And maybe even that party might not be fully aware of that as, or as you're asking the question and as they speak and tell you, it actually just lighten something up for them.

Because if you ask them why they're selling a business, for example, and they start to converse about that, they actually start to convince themselves more and more. So if someone wants to sell their business because they're tired, right. And they're tired and say, I don't have any work-life balance. My wife is nagging at me, or my husband is nagging at me and my kids are nagging at me. The more they talk about that, the more they're going to feel that, and the more that we're going to want to make the deal. Right. And so asking questions is important. And the third element is silence because silence is powerful. If you ask a question and sit in silence, allow the other person to feel that silence.

Yeah. And I think, you know, all those elements really kind of hone in on trying to understand more about the other party. I mean, too often, do we listen to react instead of what we should be doing is listen and understand. And there are two different concepts. And I think coming into negotiation, we may assume we have all the information and we kind of go into that. So just because you know, you've done evaluation, you've done a little bit of homework at the other side, chances are, you don't know all the details and you can't be too afraid to ask understanding the other side, their interests kind of, you know, what their goals are. I mean, the last thing you want to do is acquire a business and then have that other person take those proceeds and open one up across the street and steal business from you.

So those are all things you need to know. Of course, they may keep some things close to their chest, but understanding what their plans are after they sell the business, or I think, or just importantly kind of understanding what their intentions are at the start, you know, kind of why they started the business and why they want to sell the business. So those are important things you want to work into negotiated contract back, like non-compete clauses, retaining key staff, not poaching, any staff, those are all things you can put in there. Other considerations that are cash related, but can also be a transfer of risk to, to that highlighted you brought up earlier.

And as you're, as you're saying that, heart's just a couple of things just keep popping into my head is a lot of that stuff can be figured out through having the right support network and having the right advisors. And maybe let's just say, you don't want to pay for advisors. That's fine too. Maybe there's people that, you know, maybe there's mentors, maybe there's friends in your circle or family members in your circle that can give you some insight that can help you make the deal better. And I'll just give an example. One of the, when I was talking to a family member who was purchasing a condo and the condo wasn't going to be built for, I think, five years or something. And I said, do you want to make sure that you have one clause in there or look out for that one clause where let's just say, if something happened before the five-year period, and you're not able to close on that deal, well, you want to be able to put it up for resale.

But most builders, what they do is they have clauses that say, you can't put it up for resale until the builder sells all of their units first. And so if you're this person that's buying this condo and you've gone into this deal and you're not able to close, or for some reason you don't want to, you can't resell it because the con the developer may have not sold all their units. So then you might get screwed at the end of the day. So that's simple clause guests. How many people it screwed over in the last real estate crash? It was massive. It was significant. It was, it was, it put a lot of people in the bankruptcy. So again, we're, we're not going to be the bearer of bad news, but what we're saying is just simple, things like that, just by talking to someone you can pick up on some insight or advice that can help you with that deal.

Yeah. Very valid point. I mean, there's certainly some fine print in there that a legal professional would be able to help out and help Soviet world's trouble.

Yeah. So any other thoughts when it comes to negotiating a deal? Hertz?

Yeah, there's, I think it's one of those skills that we think that may not be able to be improved. And I think like many other skill sets that we may not be born with them, but through practice and through learning and mentorship, you can acquire those skills and get better at it. So certainly when it comes to negotiation, I mean, just because you're not good at it now doesn't mean you can't get better at it later. So don't be scared to approach it or to look for mentorship. Right. And at times we've seen business owners actually bring someone for that purpose, right. They have their lawyer, they have their banker, they have their valuator, they have their accountant and they actually bring in someone to mediate the conversation. So it's not an end all be all. If that's not a skill set that you have or someone that you're dreadful dreadfully scared of. I mean, I think I saw a stat on there for business owners. Some of them actually fear it as much as public speaking that that's how uncomfortable they are with the negotiation of the business sale. So there are people out there that specialize in this and reach out to them because it's, it's an area of expertise that if you don't have it, you can get better at it. But for the time being, you can bring someone for those conversations.

Yeah. And even, I think this is one thing where maybe an entrepreneur or business owner may shy away from the cost associated with bringing in professionals. But this is one area where you don't want to, it's just like, again, buying a home. You want to make sure that you get a home inspection. You want to make sure that you get the proper appraisal. So when you go to get financing that you know what the value is roughly worth. So you don't get that shock. When, when lenders say, Hey, look, we're not going to lend you the value that you think you need for this deal, because we think it's worth less. It's important because it's an investment. If you're buying a business, if you're selling, invest our business, it is an investment to have the right professionals on your side. And the other thing that pops up is is when people say, you know, experience of making a deal start small, you can always try to negotiate small.

I don't mean that particular deal, but if you're, let's just say, if you're trying to figure out how to test your negotiating skills, go take your kids out and try to negotiate something with them. Try to negotiate with your wife or your husband, try to negotiate with your, just anybody else out there, a family member, because that any type of interaction that you can have testing out your negotiation skills will ultimately benefit you and help you in the board when you're actually making business deals. And I'm telling you this, this is something that I took for granted. But if you can test out those skills, let's just say you read a book or you find something on Google when it comes to how to negotiate, better, try to test those out in real life, people in your, in your life. And if you could, if it works for them, then you can actually start to apply it. The worst thing to do is try to figure out or learn these new strategies and try to try it out for the first time in the boardroom, because someone might, you know, throw it right back in your face and it's not going to work out well for you.

Yeah. It's kind of like going to the gym on January 2nd after you haven't been for months trying to bench a few plates. I mean, you could see it come crashing down on you, but no, absolutely. I think, I think we, we tend to underestimate how much negotiation is part of our lives. It's in our relationships everyday relationships. It's not just in your business model. It's not just with your business colleagues. It's with your spouses, with your children, with parents, with other family members and friends, we're constantly negotiating. We just kind of tend to put it to the subconscious.

Yeah. And as just us as human beings, either we have our natural, you can say nature by nature of the way we approached negotiations or challenges with people as a, we will try to push our way through it and try to bend the other person to our will, which may work with kids and some people. But most often it will not because there'll be more in compliance than commitment. And that's not what you want. You want people to be committed to your vision, to your deal, not complying with it. Or we shy away from things completely. And I would say there's very few people that I come across in the real world where they play within that sweet zone of really, truly negotiating, really trying and testing to figure out what the other person wants, trying new skills, new tactics. That's really where you want to be in life. Because if you can learn that one skill of negotiation, as hard as you pointed out, life is negotiation. There's no times, man. You know this, you got a kid, you got a kid on the way you got a wife that you're not negotiating every single day. There's, I'd probably negotiate more with my kids and anybody else it's kind of crazy. But some of the best negotiating skills I've learned is from my son. Cause he's like a master negotiator. You want to know good negotiation skills learn from kids. Cause they got them. Yeah.

Yeah. I mean, my son's a little bit too young to negotiate right now. It's kinda more authoritarian. Give this to me in a scream, but I mean, there's, there's really three levels of communication, right? There's authoritarian, there's persuasion and there's negotiation when you look at it from that perspective. So when it comes to buying or selling a business, I think just too often, we just come into it, knowing with regards out that the other side is going to screw me and that's their whole intention, not everyone out there exists in this world to screw you. Right. And I think there's a lot more fruitful engagements that you can have if we can just kind of simply reverse that mindset and kind of come into it. Open-minded doesn't mean you can't do your homework and your due to due diligence as you should. I mean, you should have all your homework done and continue to do it throughout the negotiation.

You can have all the prep work done, but you still have to go in there and ask more questions. It's it's never finished. Right? I mean, I always say, it's not done until there are notes, we'll finish all the Cassius transfer and the more tie-in that you can have and transfer some of that risk, it could be more beneficial, right. And sometimes people want to buy businesses and they don't want the other party there. I mean that that's okay too, but you gotta really understand what your risk level is and what the risk level is for the other party as well.

Really good points. And that just reminds me of a saying, I believe it was Ronald Reagan that said trust, but verify because if you go into a negotiation, not trusting or feeling like the other party is going to be, you know, doing something shady. Well, that's how the negotiation is going to go. But if you go in there with trust, the other party will have more trust for you. But again, let's just say the other person is someone shady. You want to make sure that you're verifying the information, right? So you can trust them at their word, but then verify the financials, verify all the, everything that they're telling you so that you are not being screwed at the end of the day, but really good point. Their heart is really ultimately at the end of the day, it's human beings that are interacting with each other. They're not two businesses or two bankers that are negotiating. When I say bankers, I mean the role, the position, even with two bankers, you're looking at two people and if you can get on the same page with the other person, the negotiation process itself will be a lot easier. And as I'm speaking here, hard, something else pops up for me, stress and negotiation. Like how much stress do you think people get from negotiating?

I think it was right up there. I mean, I think for a lot of business owners and for a lot of individuals, it is very stressful. I mean, and I think it just comes down to mindset. If we can erase that mindset that everyone's trying to screw you, and you can take a lot of stress away. That doesn't mean that, you know, the negotiations, aren't going to have some other layers of stress or communication that may frustrate you. But I think if you come into it, knowing that you're going to be stressed, you're only amplified you're, you're already walking on egg shells coming into that conversation.

And my, I guess my last tip on that one is any time you are coming up against stressful, that requires a lot of energy because stress actually drains your energy. So if you go into a negotiation, make sure that you're going in with high energy and that means cognitive, emotional and physical energy. So make sure you're eating well. You're exercising that you have a peak level of physical energy, make sure that your mind is clear and positive and optimistic and make sure that you're not negotiating after you've had a fight. For example, with your spouse or, you know, someone has passed away in your family. Those are all elements that will help bring down your energy. A negotiating with low energy is a recipe for disaster. Go in with high energy. You're actually going to come out a lot better.

Yeah. All valid points. I mean, coming into it a, you know, a healthy framework all around mind, body and soul.

Yeah. Great. So is, I don't know if you have any more thoughts and negotiation or are we going to close out today's episode?

I think we'll close out today's episode, but I do think we can probably have another episode of illness. It is a very valid topic and one that's top of mind, as we're seeing these transactions at record pace occurring. I mean, that really is a significant part of the transaction is yeah, you have a, you know, maybe you sign an NDA, you have a letter of intent, but there's certain variables that come out through the due diligence process where it can kind of Teeter the negotiation one way or another. So I think we, we should have another topic, but I think we also leaving it open from our listeners too, is, is what they want to hear specifically on the negotiation part, because they actually might be thinking of selling their business or buying one.

Yeah. That's a great point heart. So for those of you out there listening, thank you for tuning in once again, but please do send in your questions. If you have specific questions that we can answer on the show, we absolutely. Well, or if you have a specific topic that you would like to, for us to address, we are more than happy. We actually love it when you send us your feedback and your requests. So I want to thank you for joining us today and until next time, oh, happy

New year, everybody, all the best wishes in 2022.

Oh yeah. This by the time this is released, it will be new years in 2022. Want to wish you the very best as well.