How to Negotiate Contracts, Terms, and Payments in Your First Business
As an entrepreneur, there are dozens, if not hundreds of individual skills you’ll need to master. You’ll need to perfect the art of time management. And, you’ll need to make decisions on an almost constantly revolving basis. Also, your communication skills need to be on point. There is one critical skill above all other that you’ll need to learn. It has a massive impact on your company’s bottom line. Yet, it is especially hard to perfect since it exists as both an art and a science: negotiation. And, that means you’ll need to negotiate contracts, terms, payments, and many other things as you run your first business.
In business, you’ll be negotiating everything, including both internal and external matters, and the results of those negotiations will dictate how much you spend, how much you earn, and the overall direction of your company. Fortunately, there are important fundamentals to set you up for success. And, they’re easier to learn than you might think.
First, let’s take a look at some of the most important items you’ll negotiate in your business, and why they’re so important to negotiate:
If you’re working with a business partner, investor, mentor, or other professional in your business, you may need to negotiate major decisions for the company, such as whether to move or how to expand.
The legal resource Nolo lays out two important rules about commercial leases to keep in mind: first, all leases, by default, favor landlords, and second, almost all lease agreements can be negotiated to be more favorable. Use this knowledge to your advantage.
Most of your new hires will attempt to negotiate a higher salary than what you initially offer. In some cases, they’ll be worth the extra money, but you may need to bring that requested salary down a notch before bringing them on board.
Depending on what you’re selling, almost every sale could result in a mini-negotiation over terms and price. You and your salespeople need to be equipped with the skills to handle this to maximize your close ratios (and your profitability).
Contract terms are also important to negotiate, especially if you’re starting a new partnership or are merging with another business.
Payment terms and conditions
If you’re collecting payments from customers, you may need to negotiate how those payments are to be collected, when they’re to be collected, and what the penalties are for missed payments. You may use a standard template to start, but individual businesses may have specific requests or needs to deal with.
Debts and repayments
As explained by credit repair experts at Repair.Credit, you’ll also need to know how to negotiate with creditors, delaying collections in times of hardship and working on achieving a realistic interest rate. This is especially important if your business will be taking on significant debt long-term.
Familiarize yourself with the subject matter
Before entering any negotiation, you need to learn everything you can about the situation. You should know what the typical result of this negotiation is, the backstory on the person you’re negotiating with, and plenty of facts to bring up during the course of discussion. You’ll need to make yourself seem like an expert on the subject—even if you aren’t. This will make your arguments inherently stronger (and harder to refute), and will also help you project an air of confidence, which is important in settling a particularly difficult dispute.
Have strong objective data points ready
While you’re at it, make sure you spend some time looking up objective data points that you can use during your discussion. These serve as anchor points that justify your reasoning and are hard to argue with. For example, if you’re negotiating someone’s salary, it’s far stronger to say “the average person in your position makes $45,000 in this state,” than to say, “you’re asking for too much money.” You don’t need to become a walking encyclopedia, but any additional facts and figures will help your position.
Remain firm, but polite
During the negotiation, you’ll need to adopt a balanced position, remaining firm in your statements but as polite as possible. This is tricky for most people, since being polite tends to have an almost submissive nature; try to keep your statements level, unassuming, and courteous, but without backpedaling on your requests. Don’t apologize for anything, but acknowledge the other person’s feelings.
According to Ed Brodow, this is one of the most important parts of negotiation. Remember, this is a negotiation between two different parties. Listening to the other party is valuable for two important reasons. First, you’ll get the chance to learn where the other party is coming from. Also, you’ll get information on how to position your next offer. Second, you’ll demonstrate respect. This may earn more favor from the other party as a direct result. Don’t dominate the conversation.
Be prepared to negotiate alternative points
In any negotiation, be prepared to negotiate on points you might not have considered to be negotiable. This is especially true if you’re not making as much progress as you wanted. For example, if you’re negotiating an office lease but the landlord won’t come down on the price, then negotiate better terms or special perks.
Know each type of negotiation’s ebb and flow
Though similar in most respects, every type of negotiation is a little bit different. Negotiating for the price of a home, for example, comes with an expected offer-counteroffer-occasional counter-counteroffer rhythm, and salary negotiations usually start after making a formal job offer. Learn these nuances when you can, but understand they’re not your highest priority.
Start higher (or lower) than you want to be
This is especially important when you’re negotiating prices, and a fundamental you probably already realized. If you’re trying to pay less, start with a payment offer that’s lower than where you actually want to be. If you’re negotiating a contract, start with a price that’s higher than your target. You’ll be surprised how often you actually get it, and how much better you end up after a few dozen negotiations that start this way.
Avoid letting your emotions guide the discussion
Negotiation feels like a battle in some ways. However, it’s important not to let your emotions get the better of you. Your adrenaline will rise steadily. This makes makes you more prone to outbursts or irrational thinking. Keep that emotional side in check.
Don’t give anything away without getting something in return
You should also be firm, never giving anything up without getting something in return. For example, if your new hire wants a higher salary than you’re prepared to offer, consider giving it to them. However, only do this if they’re prepared to give up a few vacation days or align a portion of their salary with a performance metric.
Adjusting Your Mindset
It’s also helpful to adjust your mindset when thinking about negotiations, though changing your perspectives, feelings, and outlooks is far more difficult than simply adjusting your behavior.
- Don’t think in terms of winning or losing. It’s important you don’t let yourself think in terms of winning or losing. If you do, you might engage in unprofessional behavior to achieve a “win” or beat yourself up if you “lose.” Instead, think of it as a neutral exercise to maximize your gains.
- Understand you aren’t being greedy or impolite. Some people are reluctant to negotiate because it makes them feel greedy or impolite to the other party. In the business world, negotiations are expected. More than that, they’re an opportunity to prevent exploitation or level the playing field.
- Remember the “other side” is just as pressured as you are. If you feel pressure entering a negotiation, chances are, the other party feels just as much pressure—if not more. Understanding this can make you more comfortable, especially if you keep the pressure on the other side.
- Don’t take anything personally. Though most negotiations end up falling between two (or more) individuals, try not to take anything personally. Everyone involved in the negotiation is either doing their job or is trying to maximize their own gains. (Almost) nobody is trying to take advantage of you or intentionally put you in a worse position.
Negotiation is one of the surest all-around strategies to make more money in your business, and protect yourself from external risks. If you don’t feel comfortable with it at first, start small by negotiating insignificant things. This could include flea market prices or household chores. Then, work your way up when you start feeling more confident.