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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03 Dec 2015
When you are running a business, one skill you need to learn and you need to learn quickly is how to negotiate. If you just accept every offer that comes your way, you are likely to spend more than your company can afford. Not being able to negotiate effectively can also mean that you aren’t getting the greatest value from the vendors or services you use. No matter how long your company has been in business, here are five areas where negotiating really pays off.
There’s ample space for negotiating before you sign a lease, whether you’re moving into a building for the first time or considering renewing an existing lease. The two big things you should negotiate with the landlord are the monthly cost of rent and the term of the lease. When you’re negotiating, your goal is to get two things: a monthly rent you can afford and an assurance that you won’t have to deal with surprise rent increases.
If the rent per square foot is a bit beyond your budget, you can try to negotiate a longer term with the landlord. A building’s owner might be willing to give you a break on rent if you’ll be there for at least or year or two, as that will save him or her the hassle of trying to find a new tenant. You can also negotiate extra fees and maintenance costs. The landlord might give you a break on rent if you bring in your own cleaning company, for example, or if you offer to handle small repairs yourself.
IT and Outside Vendors
Don’t be afraid to negotiate with your vendors, such as your business’ IT company or the company that supplies you with paper or furniture. There are several ways to go about negotiating with your suppliers and vendors. If your company goes through a lot of paper, for example, you might try negotiating a volume discount with your paper company. You can also try to negotiate extra perks from a business. A supplier might not be able to offer you a lower price, but it might be able to offer you expedited service, free shipping, or personal assistance when you need it.
Negotiating the terms of a loan or negotiating with your credit card company can save you a considerable amount of money. Having a good relationship with your lender is a key part of negotiating your loan. If you have a history of missing payments or paying late, a lender or credit card company will be less likely to work with you.
There are several things you can negotiate with your lender. Interest rates are a big one, as getting a lower rate means you pay less in the long run. One way to negotiate with a lender is to have it offer you a reduced rate after a certain number of on-time payments. If you mainly finance your business with a credit card, you can work with the card company to see if it will give you a higher credit limit.
Paying for insurance is often more affordable than dealing with liability costs or other problems that can arise. But, all of the insurance policies your business needs to be fully protected can add up when it comes to monthly premiums. If your insurance company is threatening to raise your rates, it’s worth trying to strike a deal with it. One option is to offer to combine multiple policies with the same company. Often, companies offer a discount for multiple policies. It can also be worth it to play different insurance companies against one another. Get quotes from a variety of companies, then go back to the one you want to work with the most, with the lower priced quote from another company, and see if the preferred company will match it.
Employee Benefits and Salary
If you want the top talent working for your company, you’re going to have to negotiate with them. Keep in mind that it’s not just salary that you’ll be negotiating. You’ll also need to work out a perks and benefits package for employees. Even if your business can’t pay the high salary an impressive candidate wants, you might still be able to work out a deal by offering a good 401k match, the option to telecommute, and an impressive health insurance policy.
Negotiation is part of the process of building long-lasting relationships. If you’re struggling at the negotiation table, the team at New Direction Capital can help. Working with our virtual CFO can help your company figure out the best way to interact with vendors, landlords, and potential employees. Contact us today for more information.