Once you've established what the major terms of your deal are going to be, you can begin to negotiate on what's probably the most important aspect of the sale of your business: the price.
Whenever you negotiate price, in any type of sale, it's almost always best to let the other party make the first offer. When someone names their price, you have a fix on at least the minimum they will accept. However, as a practical matter, you will often have to make the first price move because you will have to give a ball-park asking price to your business broker. The broker will need a figure in order to advertise your business, or to contact buyers and see whether they might be interested in purchasing. You might also have listed an asking price for your business in your selling memorandum.
Of course, the buyer knows that your asking price is not the least you'll settle for. What he doesn't know is how low you'll go. If your buyer knows that your asking price is based on a formal appraisal using recognized valuation formulas, he or she may take your asking price more seriously, and make an offer that is fairly close (i.e., within 20 percent or so) to it. However, don't be shocked if you get low-ball offers at around 50 percent of your asking price, or even less. There are a lot of bottom-feeders out there looking to buy businesses from desperate owners, but there are also legitimate buyers who just want to test your stamina by starting with a small bid. You should always respond to each offer on its own merits, and don't allow yourself to feel insulted or angry at an offer that you think is far too low.
On the other hand, if the buyer names a price that's more than you anticipated, don't automatically accept the first offer. Buyers will expect you to bargain hard on this issue. If you give in too soon, they will think something is wrong with the business, or with you (which in turn reflects on your business). An exception to this rule applies to large corporate buyers they sometimes bid on a lot of small companies, and if you don't bite, they'll simply move on to the next likely prospect.
Our general advice is that you try not to get too hung up on any particular price. If you feel that the buyer won't budge, you can go back and change some of the terms you've tentatively agreed on, to make them more favorable to you. Your broker or attorney may have some creative ways of bridging a price gap between you and the buyer. For example, the buyer might agree to purchase some zero-coupon treasury bonds (commonly known as "strips") for you, at a discount that allows you to get your desired price when the bonds mature, but at a present cost to the buyer that's much lower. Or the buyer might purchase a single-payment annuity product from an insurance company that will pay out enough each year to give you a comfortable retirement, at a price that's much lower to the buyer. In family transactions where the buyer is the owner's child, the child may be able to set up a nonqualified pension program for you that will give you the desired price, but create tax deductions for the child (the groundwork for this type of solution needs to be set up several years before the sale, though).
You can also decide to keep some of the business assets yourself, and lease them back to the buyer (or anyone else) to reduce the business's price. The point is, there are almost infinite possibilities, if you are willing to be flexible.
Include an expiration date in any firm offers. Under contract law, when someone makes a firm offer they can theoretically be forced to complete the deal at that price (though if they are smart they will hold back some reservations in the form of contingencies, such as "this offer is contingent on my attorney's approval of the purchase contract"). Therefore, every time you make an offer or counteroffer as to price, make sure that you have attached an expiration date to it. If the other party does not accept before the expiration date, the offer goes up in smoke and you can't be held to it.