When/how to discuss flexibility in asking price?

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November 09, 2023

by a searcher from University of Wisconsin - Madison in Salt Lake City, UT, USA

I launched my self-funded search a few months ago and have been reviewing deals as I come across them. Sometimes a deal comes by that seems very interesting based on the industry & financials, however, the asking price is too high based on my personal valuation.

My question is, at what point in the process do I inquire about any potential flexibility in the asking price? Do you test the waters at the outset by asking the broker/owner? Or do you typically just submit an LOI with your personal asking price and what/see if they accept?

Thanks!

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Reply by a searcher
from New York University in Grand Rapids, MI, USA
I usually don't put a lot of weight in their "price" as much as its a signal that they are anchoring. The financials I've seen with deals I've dug further on illustrate that the price is often idealistic for seller's dream exit, former glory, misunderstanding the market dynamics, lack of accounting comprehension, etc...

That said, be prepared to talk price in the second or third interaction. I have found it works well to go in slow regarding gathering information from sellers/brokers and try to understand context and motivations. The highest price is nice for sellers but not always the most important factor if the deal has been on market for a long time or has few interested (or qualified) buyers.

Summary: Don't buy the "price". Determine price based on all factors and establish a premium you can support with the business needs/constraints. They don't have to accept it and you can move on. Sometimes they come back to you months later, too.
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