Business Negotiations: To successfully negotiate a commercial agreement, you must be well-prepared, alert, professional, and many other qualities. In this article, I’ll give you some pointers on how to conduct commercial talks and close a contract.
1. Listen to and Comprehend The Concerns and Points Of View Of The Opposing Party.
Some of the worst negotiators I’ve seen are those that do all the talking, appearing to want to dominate the debate and dwell endlessly on the virtues of their stance. The most effective negotiators are those that actually listen to the opposing party, understand their core issues and hot buttons, and then create an acceptable answer. Try to grasp what is vital to the opposing party, what constraints they may have, and where they may have flexibility. Keep conversing to a minimum.
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2. Be well-prepared.
Being prepared for business talks requires a variety of activities, including:
- Examine and comprehend the other party’s business completely by examining their
- website, press announcements, articles written about their company, and so on. A comprehensive Google and LinkedIn search is recommended.
- Examine the individual you’re negotiating with’s background by reading any bios on the company’s website, the person’s LinkedIn profile, and conducting a Web search.
- Examine the terms of similar transactions conducted by the opposing party. Some earlier agreements may be filed with the SEC by public firms.
- Understand the offerings and pricing of the entity you are negotiating with’s competitors.
3. Keep Business Negotiations Professional
The “don’t be an asshole rule” is another name for this. Nobody wants to do business with someone who is difficult or abusive. After all, even after the commercial negotiations are through, you may wish to do business with this individual again, or the deal may necessitate continued interaction with the other side’s representative.
One of the goals of the negotiation should be to establish a healthy long-term partnership. In corporate discussions, a collaborative, optimistic tone is more likely to result in progress toward a conclusion.
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4. Recognize The Transaction Dynamics.
In each negotiation, understanding the deal dynamics is critical. As a result, be prepared to determine the following:
- Who has the most negotiating power? Who wants the transaction the most?
- What are the other side’s time constraints?
- What options does the opposing party have?
- Is the other party expecting a big payment from you? If this is the case, the leverage will be on your side.
5. Always Write The First Draught Of The Agreement.
The first draught of the proposed contract should be prepared by you (or your lawyers) as an absolute essential principle of practically any negotiation. This allows you to shape how the agreement should be formed, implement critical aspects that have yet to be mentioned, and gain momentum on your side.
Because the other party will be hesitant to make significant revisions to your paper (unless it is excessively one-sided), you will have already won a portion of the war by beginning with your chosen wording. Having stated that, you should avoid beginning business discussions with an agreement to which the opposing party will never accept. The crucial word here is balance.
6. Be prepared to “play poker” and walk away.
You must be able to play poker with the other side and walk away if the parameters of the transaction aren’t acceptable to you. This is easier said than done, yet it is often necessary to reach a goal. Determine your target pricing or walkaway price before you begin. Prepare market facts to back up why your pricing is reasonable, and be prepared to walk away if faced with an ultimatum you truly cannot live with.
7. Avoid the Terrible Strategy of “Constantly Yielding” During Bargaining.
Business Negotiations: Years ago, a company with which I was connected was keen to sell itself. The CEO was sure that a particular prospective buyer was the appropriate acquirer, and he desired to close the transaction with them. But the buyer kept making fresh outrageous requests, and the CEO kept caving down in the hopes of reaching a closing. So, what did the purchaser do? It discovered that it could keep asking for increasingly absurd things and that the CEO would always cave.
After nine months and $1 million in legal bills, the company still had no settlement. I then took over the discussions and informed the buyer that we were no longer interested in the terms they were proposing and that we would walk away unless the price and contract parameters improved significantly for us.
By that point, the buyer had spent a significant amount of legal money and managerial time to reach an agreement, and they were terrified of losing the deal. So they agreed to almost every demand I made, including a higher purchase price, and we concluded the deal in 45 days.
So the lesson was that constantly conceding points (while receiving nothing in return) can result in the exact reverse of what you want. If you give up a point, make sure to obtain something in exchange.
8. Remember That Time Is The Enemy Of Many Agreements.
You must understand that the longer a transaction takes to complete, the more likely something will happen to derail it. (The current COVID-19 pandemic has put many outstanding transactions on hold.) So answer immediately, have your lawyer get documents back swiftly, and keep the process rolling.
However, this does not mean you should speed through commercial talks and make unnecessary concessions. Recognize when time is on your side and when it may be your worst opponent.
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9. Do Not Become Fixated On The Deal In Front Of You And Disregard Alternatives.
Business Negotiations: In many cases, having competitive choices is desirable. This can improve your negotiating position and allow you to make the best option possible. For example, if you are selling your firm, having numerous possible bidders at the table is the finest thing you can do. You don’t want to be trapped into exclusive discussions with one bidder until you’ve achieved an agreement on the best price and terms available.
Similarly, if you want to buy a product, lease office space, or get a loan for your business, you will often be better off if you have alternatives—and the other party is aware of them. When you negotiate with two or more parties at the same time, you can frequently secure better price or contractual terms.
10. Do Not Become Fixated On a Single Topic.
You want to avoid becoming bogged down by a seemingly intractable problem. Sometimes it’s best to advise that an issue be set aside for the time being while both parties work on other matters. Outside of the heat of the negotiation, an innovative solution may come to you afterwards.
11. Determine Who The True Decision-Maker is.
Business Negotiations: You want to know how much authority the individual with whom you are bargaining has. Is he or she the final authority? I recently had a long and frustrating business argument with someone who kept telling me that he didn’t have the authority to agree to a number of items we were negotiating.
He could tell me “no” to my wishes, but he couldn’t tell me “yes.” Because I had leverage, I ended the session and stated that in order for us to make any progress, I needed to talk with the person who had the authority to make decisions and concessions.
12. Never Accept The First Offer You Receive.
Accepting the initial offer from the opposite side is frequently a mistake. If you are selling a home and receive an offer, try countering with a higher price or better terms (even if there are no other offers). If you do not counter, the other party may become anxious that they offered too much and may have buyer’s remorse and attempt to back out of the purchase.
And purchasers anticipate a counter because they believe their initial offer will be rejected.
Most buyers will allow room in their first offer to increase the price by at least 5% -15%, depending on the situation. Counter-offers and back-and-forth negotiating will almost certainly result in the two sides feeling pleased that they obtained the greatest bargain possible and so being more dedicated to sealing the deal.
13. Ask The Appropriate Questions.
Do not be hesitant to bombard the other party with questions. The responses may be useful in commercial discussions. Depending on the nature of the transaction, you could ask:
- Is this the best price or offer you have?
- What guarantees do you provide that your product or solution will work for me?
- What are your rivals’ names? How do their offerings stack up?
- What else can you add to the deal at no further cost to us? (This is a great question to ask vehicle salesmen.)
- When do you want the transaction to close?
- How does our offer help you?
We wish to prevent onerous contract terms and attorneys on your end. How will we ensure this?
14. Create a Letter of Intent or Term Sheet That Reflects Your Agreement.
Business Negotiations: It is frequently beneficial to produce a Letter of Intent or Term Sheet at the proper time to convey your perspective on the essential aspects of a contract. This can help to speed up the process of reaching an agreement, save money on legal fees, and maintain the momentum for a deal.
It is less formal than a definite agreement and hence easier to agree on. Letters of Intent, for example, are frequently written and agreed upon in connection with mergers and acquisitions (see How to Negotiate a Business Acquisition Letter of Intent).
Here are some nice sample forms to review that can assist you in creating such a document:
- A joint venture letter of intent
- A term sheet for leasing office space A term document for venture funding
- A term sheet for a strategic investor’s investment.
- A seller-friendly term sheet for selling the company.
- A letter of intent to purchase that is advantageous to the buyer
15. Obtain The Assistance Of The Greatest Advisors and Lawyers.
If it’s a large or sophisticated transaction, you’ll want actual experts on your side to assist you negotiate and create the contract. For example, if you are selling your business, it is usually worthwhile to employ an investment banker who is familiar with your industry and has ties with potential buyers.
If you are doing a real estate transaction, you should hire an experienced real estate attorney who has completed numerous transactions similar to the one you are working on (and not a general practitioner lawyer).
If you are conducting an M&A transaction, you should hire a lawyer who has completed 50 or 100 M&A transactions (and not a general business lawyer). These consultants are not inexpensive, but they are well worth it if you find the right one.
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