How to Negotiate
Five Negotiating Tips to Ensure You Get a Good Deal
May 1, 2021
Tanner & Guin compiled our decades of experience in business and corporate law to create the following guide to help you in your next negotiation.
Tip One: Prepare for the Negotiation.
Every successful negotiation starts with preparation. Before you enter into negotiations, regardless of the subject matter of the transaction, you should get to know who you’ll be working with, the subject of the negotiation, and the goals of those involved.
Get to know the negotiator.
You should get to know the party you are negotiating with so you can gauge their strengths and weaknesses. People are creatures of habit, so it may help to talk with others who have dealt with this person before. It’s often advantageous to adapt your style to one that is compatible with the other side. For instance, a “balls to the wall / take no prisoners” mentality will not serve you well when negotiating with someone who has a more laid-back, friendly style.
Know the Industry, Business, or Product.
If you don’t regularly deal with the industry, type of business, or product involved in a particular negotiation, you should study up on the same. It is helpful to know industry jargon and trends. Industry trends can often dictate negotiating points and deal terms such as risk allocation and pricing. You should also have a working knowledge of the business being bought or sold if you’re engaged in a purchase/sale transaction. Like knowing the industry and business, you should also know the product or service involved. This will serve you well in spotting areas of concern that you might otherwise miss and in pitching it correctly.
Have a Goal in Mind.
Most negotiators have a target or goal in mind before the negotiations start. This goal should be based on realistic expectations considering all the constraints that will undoubtedly surface. It will help to consider budget limits, direction from management, pressure to make a sales goal, and any other myriad of external forces. You should also try and discern the goal of the other side. Is the buyer a strategic buyer – meaning, for example, are they buying your client’s business to achieve a competitive advantage or streamline a manufacturing process? Or are they buying for investment – typically planning to resell within a few years? What they focus on during negotiations will clue you in on their goals and objectives.
Tip Two: Have a Negotiation Strategy.
You should always have a strategy when entering into negotiations. In a purchase/sale transaction, the first offer is very important since it usually sets the benchmark by which all other subsequent offers will be judged and compared. Also, be sure to watch for clues such as body movement, speech patterns, and reactions to what you say. Be prepared to suspend or cancel negotiations if you feel that things are getting nowhere, or the other party seems stuck in their position.
Tip Three: Leverage Your Strengths.
Concentrate on gaining leverage by taking maximum advantage of your strengths. Be aware of your bargaining power. The stronger your position in the negotiation, the more of a hard-line approach you can take. Alternatively, if you don’t have good bargaining power, be prepared to compromise on more points.
Tip Four: Go for a Win-Win Deal.
It is important during the negotiations to try and determine what you believe to be an acceptable outcome for the other party. Understanding the other side’s priorities is just as important as understanding your own. Be prepared to concede little things in exchange for the big things you do not want to give up. Your primary goal should be to gain a favorable outcome without destroying or demoralizing the other party.
Tip Five: Communicate.
Although last in this list, communication is perhaps the most important key to negotiations. You should always openly and honestly communicate in negotiations. While you need not disclose all information related to strategy and ultimate positions, you should never attempt to gain an advantage with dishonesty.
Tips for Avoiding Bad Deals
Get it in writing.
Make sure your deal is properly documented and that the transaction documents accurately reflect what was bargained for and agreed to. Do not leave anything to a handshake or assumption.
Contracts should be drafted in plain English. Clarity is very important. If a dispute arises, the clearer contractual terms are, the easier it will be to resolve the conflict. Define all key terms, and do not assume that all individuals define industry jargon the same way. Incorporate all key terms in the contract and clearly define each party’s obligations, including schedules, pricing, and delivery requirements.
Consider Indemnity and Insurance.
Consider including indemnity and “hold harmless” provisions to shift certain identified risks to the appropriate party. Also, decide whether each party must maintain insurance at required levels. Doing so may make it easier to collect in case of a breach.
Agree Upon Law and Location of Dispute Resolution.
It is important to decide what law governs the contract and where and in what manner disputes will be resolved.
Read and Understand the Contract.
Before signing any written contract, actually read and understand the terms. Confirm that the contract clearly reflects your intentions.
Know when to Say “No.”
If all else fails and the deal is heading south, walk away. Some people get “deal fever” and will do anything just to get the deal done. Some deals, however, aren’t worth having. If the issues keep piling up, it might be time to walk away from the table.
If you have any questions about negotiating a transaction, please contact Hannah Morgan at email@example.com or (205) 633-0279.