As you will find, acquiring a business is half analytical and half psychology. For many, buying or selling their business is extremely personal and emotional. For both buyers and sellers, it is completely normal to have concerns, worries, or even fears about an acquisition. But if you know what to expect, fear doesn’t have to be debilitating.

Daniel Kahneman and Amos Tversky coined the concept of “Loss Aversion,” which says that the fear of losing money has more influence over the investor than the desire to make money. Because of the pain of loss, people will do more to avoid a loss than they will to maximize profit.

Why is this critical to understand? Because if you are a buyer, you need to remember that a potential seller’s fear may be more powerful in her decision-making than anything else. In other words, the best way for a buyer to win is to work to minimize perceived risk up front, so that the potential upside of the deal may shine.

Furthermore, business owners hold a lot of weight on their shoulders – especially any who have bootstrapped the company’s growth. The number one fear we hear from sellers repeatedly is “is this the right decision?”

They question the timing, the details of the transaction itself, and the effect the decision will have on their employees/families/loved ones. The good news here is that some old-fashioned planning ahead can lessen this fear significantly.

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One of the reasons that smart people often have trouble in negotiations is they think they don’t have anything new to learn. The key is to recognize that you most likely have no idea why the seller wants to exit the company. The seller’s motivations may be hidden, unclear, or in some cases, underdeveloped. The only way to understand the seller’s motivations is to ask questions and develop a rapport.

One of the main goals of any negotiation revolves around gathering information before attempting to persuade the Seller. Your goal is to extract and observe as much information as possible.  Here we outline a selection of tactics and techniques that can help negotiations.

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1. Build Rapport

‍Most of us enter negotiations overlooking the emotional matters and with the intention of presenting a logical case as to why the seller should agree to our proposal. Slow Down and avoid undermining the rapport you’ve built.  Going too fast and rushing the seller is one of the mistakes all negotiators are prone to making. If the seller feels rushed, they may not feel heard and like you don’t care about them. Try to listen more than you speak and pay attention to the following signs to understand the seller’s perspective.

2. Ask Questions

‍The seller will enjoy answering. For some, questioning comes easily. Their natural inquisitiveness, emotional intelligence, and ability to read people put the ideal question on the tip of their tongue. For most of us, we either don’t ask enough questions or can pose questions more effectively. Following are a few questions to consider:

• What terms or issue(s) are non-negotiable?
• What topics does the seller want to revisit?
• What topics motivate the seller to take control of the conversation?
• What terms or issue(s) make the seller emotional, stressed, or uncomfortable?

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TIP. Read “How to Ask Great Questions” and “Thinking Through Problems and Asking Better Questions” from the Harvard Business Review

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3. Pay Attention‍

To the items or topics that a seller deems important in addition to items the seller overlooks. Specifically, watch for sellers who haven’t reviewed the details of your fund, your team, your investors, or your offer. Look for generic questions or ‘executive summary’ questions. Some prefer to revisit the basics of your fund and the deal but beware of any seller that doesn’t ask deeper questions or questions that advance negotiations.  Following are a few warning signs about sellers, bankers are brokers who:

• Ask questions about topics that have been covered
• Behave in an unusually rude, demanding or demeaning manner
• Expect the price or the range to be increased after agreeing to the LOI
• Request bids without agreeing to meet or agreeing to share critical data
• Exaggerate, embellish or are unable to say, “I’m not sure, I’ll look into it"  

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4. Build a Shared Commitment

‍You want to know that the seller is working in good faith. Most sellers are reluctant to open up in negotiations, especially if they are unsure of you or the deal. If a seller seems to be hiding information and evading questions, it’s natural to perceive the seller as deceptive - chances are they seller is nervous and afraid. Give them the benefit of the doubt, and remember the emotions involved for the seller!  

Reduce anxiety by being the first to share information BUT make it clear that you expect reciprocity. Consider outlining some ground rules and make sure the seller commits to reciprocating. For example, you might say: “I know that there are many things we need to discuss. If you prefer, we can start offering some of my key interests, concerns, and constraints. Then you can do the same. Does that sound like a reasonable way to proceed?” Such an approach helps reduce anxiety because the seller knows that both sides are vulnerable.

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TIP. If you lack confidence in the seller, share information incrementally and take turns to manage the time and effort if the other party fails to be cooperative

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5. Embrace Tough Topics

Embrace touch topics and ask questions about price, structure, and terms, and what they mean to the seller. During negotiations, take a hard look at what topics stand between you and a mutually acceptable deal and ask polite ‘challenge questions’, for example, “What are you planning to do after you exit your business? What will you use the proceeds for? Do you hope to stick around as an advisor or to help with the transaction post-sale? Are you concerned with leaving a legacy?”