Whether you are working with a potential employee to determine a salary and benefits package or speaking with a competitor about selling your company or buying a different one, negotiating is a key part of owning a successful business. When you negotiate, you are working with another party to put together an agreement that somehow benefits all parties involved. You might not get everything you want out of the deal, but in some cases, that’s better than no deal at all. Here’s what you can do to improve your negotiating skills and increase the likelihood of reaching an agreement that suits everyone.
Make a Plan
Before you walk into any negotiation, you need to have a plan. Write out the things you want to discuss during the meeting and what your ideal goals for the negotiation are. Ideally, you’ll draw up a few plans before you start the negotiating process.
Plan A can be your ideal plan or the outcome that you’d like to have come about in a perfect world. Plan B can be an acceptable plan but not your preferred outcome. Try to think about how the person you are negotiating with will react and what you can do to steer the negotiation in the direct you want it to go. Making plans and lists beforehand prepares you for a variety of possible situations and helps you avoid losing your cool at the table.
Don’t Be Afraid to Go First
One common piece of negotiating advice is to always let the other party make the first move or offer. But it might actually be in your best interest to go first. A study from Harvard Business School found that people who make the first offer typically come out ahead in a negotiation. That’s because that first offer acts as a sort of anchoring point for the negotiation. The first figure you offer can sway the other party to adjust their offer either higher or lower. For example, if you are negotiating salary with someone and you offer $100,000 off of the bat, the potential employee might lower their counteroffer to be more in line with your initial offer.
Additionally, if you are selling something and you start the negotiation with a price of $5,000, the buyer might adjust their asking price upward, even if the item you’re selling isn’t really worth $5,000. The Harvard study points out that high anchor prices make people focus on the good features of the item on offer and help them ignore the not-so-great features.
Flexibility is a key part of a negotiation. After all, a successful negotiation usually involves a fair amount of give and take from both parties. When you’re making your plan, include a few things that you can give up or that wouldn’t be the end of the world if they weren’t included in the final deal. When you prepare for the negotiation in advance, it’s a lot easier to be flexible with the person you’re working with.
Another way to improve your flexibility during a negotiation is to try to see things from the other party’s perspective. You might not want to match 10 percent of contributions to an employee’s retirement plan. Ask yourself why the potential employee wants that and what you can offer as a suitable alternative.
Walk Away If Necessary
It’s important to remember that being flexible during a negotiation doesn’t mean completely giving up everything you want to get out of it. It’s not really a negotiation if the other party gets everything they want and you get nothing.
When you’re making your list of goals and plans for the negotiation, include numbers or terms that are your absolute deal breakers. For example, if a potential employee won’t budge from a $150,000 salary, but you can only afford $125,000, it’s OK to move on. If a buyer won’t pay more than $3,500 for your product, but you know it’s worth $4,000 and that you can get $4,000 from someone else, walk away.
Don’t necessarily slam the door shut when you walk away, though. The other party might change their minds after having some time to reflect on the situation. Or, they might realize that $4,000 isn’t too much to pay for a product they need.
There will come a time when you need to negotiate. If you’re nervous about heading to the negotiating table or aren’t sure where to start the planning process, the team at New Direction Capital can help. Our virtual CFO can help your team develop the negotiation techniques and skills it needs to grow your company and take your business to the next level.
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You’ve found a person who seems like he or she will be a perfect fit, not only for the position your business has open, but also for the culture and personality of your company. The next phase, and the phase that can make or break the hiring process, is negotiating salary and benefits. In a perfect world, you’ll offer a sum, the candidate will accept, and you’ll have a great new employee. But, since that is often not what happens, knowing how to interact with and respond to a candidate during a negotiation can help you land on a salary that works for both of you.
Don’t Rush Things
It might seem like a good idea to ask candidates for salary requirements up front, as that way you can eliminate anyone who’s too expensive and zero in on the candidates who seem more affordable. But, talking about salary before a candidate has a full understanding of the job or eliminating a candidate on the basis of past salary alone can be detrimental. Instead, wait until nearly the end of the process before you discuss salary. That way, you won’t scare off any potentially excellent candidates.
Figure Out Market Value
Any potential employee worth his or her salt will do some salary research before meeting with you. You’ll want to do the same, to make sure the amounts you are offering are competitive. When figuring out the range of salary and benefits you can offer an employee, look at what similar companies offer to those with comparable experience levels. You don’t want to risk offending a candidate by offering a salary that is significantly lower than the going rate. But, you also don’t want to pay more than needed to land a hire.
Understand When the Ball Is in Your Court
When you’re hiring, there will be times when the ball is in your court and there will be times when the ball is in the candidate’s court. If you advertise for a position and you get a lot of stellar applicants, the ball is usually in your court as far as salary negotiations go. There are plenty of people who would be perfect for the job, so you probably won’t have to offer the top amount you can pay. But, if the position is very specialized and difficult to fill, the ball is likely to be in the candidate’s court, meaning you have less leverage when it comes to negotiating.
Remember It’s Sometimes About More Than Salary
For many candidates, the amount of money they take home each pay period is just one perk among many when working at a company. During your negotiations, if a candidate asks for more money than you can afford and there aren’t a lot or any other options out there for you, try to negotiate areas other than salary. For example, you might be able to offer a candidate a higher match on his or her 401(k) contributions or move up that date on which he or she is vested in the plan to make the position more appealing. You might consider offering more flex time or vacations days, in exchange of a lower salary than the candidate hoped for.
If your company has a set salary structure and a desirable candidate is requesting a sum outside of the pay grade, one option is to offer a signing bonus instead of increasing the salary offer. A signing bonus won’t solve your problems if you’re on a strict budget, but it can make a candidate happy and help you avoid distorting your company’s salary scale. Additionally, a signing bonus can be a great way to discourage job hopping. You make the bonus continent on the employee staying with your company for at least a set amount of time. You worked hard to land the right employee; you want to make sure he or she is going to stick around.
If you need help figuring out how to work the salaries of new hires into your company’s financial plan, the virtual CFO services offered by New Direction capital can help. Contact us today for more information on how you can streamline the hiring and salary negotiating process.
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