Over the years, I’ve worked with many business owners to negotiate deals and have learned a lot about how to get the best deal outcomes for my clients. Every time I go through the process I learn a little more about human nature and practical issues that arise.
These are some of the top things to consider when undertaking a business negotiation:
- Recognize how badly you want the deal to get done.
If you know that you really HAVE to get the deal done, the opportunity to gain a better deal may be limited. A client who is willing to walk away from a deal will typically get better terms. It’s always possible that the other side is willing to walk away. Good negotiations help both parties probe for that balance point which allows a good deal for both sides to happen.
- Your ultimate negotiating tactic is being willing to walk away.
Remember this point well – the worst-case scenario is not that a deal doesn’t get done. The worst-case scenario is that a deal does get done, and the deal stinks.
- Do your homework long before entering negotiations.
Is their competition for the deal? Is the seller in a financial bind? Does the buyer have the money to get it done? Who are you competing with as a buyer? Sellers do well to let a buyer think there are other buyers out there, so one of the important things a buyer should do is verify whether there really are any other credible buyers against whom they are competing.
- Be patient.
Take the time to do your homework and read the fine print. Don’t get pressured with those “has to close by Friday” type of agendas. Closing a deal too quickly might obscure a problem that would have become clear if you had taken another week or two in the process. If you can help it, don’t rush.
- Learn some of the basics of contract negotiations.
Once you make a binding offer, if the other side accepts the offer then you are under contract. If you offer revisions to a proposed contract, then you have made a counteroffer which essentially nullifies the offer made to you. In effect, a counteroffer is a rejection of the initial offer and the proposal of your own terms. Also, a contract can normally be withdrawn at any time before it is accepted. So as you negotiate a deal, you should always understand where you stand in that process – have you made a binding offer? Have you met the conditions of acceptance? For instance, if the contract required a deposit by a certain time, then your signature alone may not have you under contract. Don’t bid against yourself.
- Be polite and listen to the other side’s concerns.
Too many people take the approach of “take it or leave it”. That is ego driven and whether you feel that way or not, it serves you poorly at the negotiating table. Try not to draw lines in the sand, not openly at least, or unless you REALLY mean it. Don’t bluff unless you really are ready to walk away. If the other side is as proud as you are, then you have a recipe to get nowhere and the deal may fall apart. It’s a “Getting to Yes” black letter rule that you should try to understand the other side’s concerns. When you take the approach of trying to alleviate their concerns you may get your important concerns addressed also without losing much in the process because their concerns may not mean much. Parties can get emotional and they tend to keep score, thus keeping the discussions positive is helpful. In fact, a good way to close the negotiations is by giving in on something to make the other side feel like they got the longest straw.
- If you have some difficult provisions to overcome, let the lawyer be the “bad guy.”
That allows you to tell the other side that this is a difficult issue and you feel like you need to listen to your attorney’s advice because that’s what you are paying him to do. A response to a question about why you are being difficult might be “You’re probably right but I don’t understand it well enough and I think I need to trust the advice of my legal counsel.”
- Have some “give-aways.”
It helps when both sides believe they are gaining concessions. I’ve seen clients put up “token resistance” on certain deal points, knowing that they would readily concede them to swap out on something that IS important to them. Negotiating is a chess game to some extent. There are many plays, many pawns lost along the way while building to the ultimate deal points, whether it be price, performance, liability, etc. Know what you need in the end to get the deal you want. Don’t lose your way looking down every rabbit trail.
- Maintain your credibility throughout.
If you say you are going to do something then do it (a written offer by Friday). If you say you are not going to bid against yourself, then don’t. Those type tips tell the other side how desperate you are to close, how willing you are to walk away, whether you are bottom feeding looking to steal a deal, etc. Plan your moves and work your plan. And again, if the deal doesn’t feel right to you, then walk away. There is ALWAYS another deal. Keep your cards close to your vest.
- Trust your advisors.
Your business lawyer should work with you not only to explain what certain provisions mean but to help you formulate the best strategy to get a good deal put together. Its also a good idea to check with your CPA and banker and any other critical players who may have valuable insights into the negotiations. Good information and advice is invaluable as you attempt to negotiate a good deal. Don’t seek advice from “yes men” but someone who will challenge you as to why you need to get a deal done and force you to think things through.