Improve Your Negotiations With The 5 Golden Rules.   LEARN THEM

“He doesn’t get it. He believes his business is worth $50 million when it’s highly unlikely any buyer will pay more than $25 million based on his financials. How can I help him reset his expectations without seeming too negative regarding the sale of a business he built from scratch?”

All of us have dealt with folks with unrealistic expectations, whether it’s clients, counterparts, or even business partners.  So how do we help them, especially if their unrealistic expectations might destroy possibly good deals?

1.      Explore the basis for their expectations

Why does the seller believe her house is worth $1 million? Perhaps her neighbor sold a similar house in 2007 for $1 million. Or perhaps her work colleague – who has dabbled in real estate – told her she had a million dollar house.  Or perhaps she has an inexperienced agent who didn’t comprehensively analyze the recent sales of comparable properties in her neighborhood. Or perhaps it’s just her gut feeling.

Whatever the reason, find it out.

2.      Evaluate how to address their expectations

Just because your client, colleague or counterpart has unrealistic expectations doesn’t mean you must immediately burst their bubble.  Instead, analyze the short-term impact of their unrealistic expectations in deciding what to do.

If it’s a potential client and you just met them, spend sufficient time rapport-building and developing the relationship before you address their expectations.  This is especially true if their expectations will have no short-term impact on the deal (perhaps they believe their business is worth $50 million, but you will be soliciting bids from potential buyers and won’t be making the initial move.)

Of course, this is a balance. You don’t want your silence perceived as assent. But you also don’t want to challenge them before you have sufficient information and credibility to have an impact.

3.       Identify objective standards to reset their expectations

If and when it’s time to reset their expectations, share independent objective standards like market value, precedent, expert opinions, costs and industry standards that support a more reasonable conclusion.

Point to a market value analysis by a well respected and independent business valuation expert that concludes the business is worth $25 and not $50 million. Or point out the lack of precedent for his opinion as no businesses in his sector have sold for that multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) since the dot-com bubble.

Or tell the house seller that two similar houses nearby are for sale at $750,000 and each has been on the market for three months.

4.      Test the market and their leverage

Finally, don’t discount the possibility that their expectations may not be totally unreasonable even if you’re an expert.  We can’t always predict the future or what someone might be willing to get in any deal.

If this is even a remote possibility and it doesn’t cost much in time, money or downside risk, suggest they test the market and their leverage. That will tell them if they’re being unreasonable – or not.

Published March 3, 2011 The Arizona Republic

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