Improving Small Business Contract Negotiations

Whether finalizing an agreement with customers, suppliers or employees, negotiation skills that lead to outstanding contracts ?can go a long way to boost the profitability of an SMB. So how do SMBs enhance their negotiating skills?

First, know the subject matter of the negotiation. That means do your research ahead of time. And do it thoroughly. Consider supply contracts. Small business owners negotiate contracts with all kinds of suppliers. If you’re a prepared negotiator armed with data on price, competitors and geography, you might be able to reduce your overhead costs by negotiating discounts with your suppliers. Know your options, get alternative quotes, and be prepared to ask tough questions if the supplier tries to upsell you. Always have a predetermined idea of what you think would be a fair outcome. While you may have to adjust up or down, if you feel like the result is too far away from your ballpark estimate, tell the supplier that you’d like to do more research and get back to them.

Second, be a creative negotiator. There’s not always one way to come to a written agreement. If you’re an effective negotiator, you’ll act creatively to find ways to get what you want. For example, if you’re in the market for a particular kind of employee (perhaps a contract manager?), but you’re not prepared to pay top dollar for someone, you might draft an agreement with incentives such as work from home or flex time to get an ideal staffer at a competitive price. Highlighting what your SMB has to offer is an important negotiation skill. One might even think SMBs – having fewer resources, capital and time – must be even more creative negotiators than larger companies.

Third, small business owners must be both flexible and firm. These aren’t contradictory. Whenever you negotiate there’s always give and take. And give and take doesn’t mean conflict. Rather, it’s a skill that we believe is admirable. Good negotiators make sure that each offer they put on the table is clearly defined, but it may not be carved in stone. As the deadline to close a deal comes near, a good negotiator knows the relevant terms and provisions, the fallbacks, and the options, as though he was holding cards from a deck. In fact, like cards, a good negotiator often keeps a card hidden in reserve that he can use if needed. But no card tricks: As a negotiator you want to be known as a straight shooter.

Fourth, keep a record of your negotiations. When engaged in contract negotiations, it’s critical to take – and maintain – notes of the details discussed, discarded and agreed to during the dialogue which may occur by phone, over email, and in person. Tracking these details helps ensure that significant aspects of the eventual agreement are documented and may be referred to. Not only is this important at the time of execution, but also during the course of the agreement if and when there is any misunderstanding or dispute. It should go without saying that a record may protect your SMB from any potential litigation; for example, to refresh your collection during a deposition.

Fifth, know where you are on your negotiation timeline. Negotiation is more often a marathon and not a sprint. You know your objective: a mutually beneficial agreement. But as your negotiations progress, how do you determine whether you’re closer to the start or the finish? One suggestion is to consider at the outset how much time you believe the negotiation should take. A day? A week? A month?? That means keeping to the timeline, assessing and summarizing where you are at a particular time, and knowing when (and if) to call “time”.

Finally, negotiation to create a contract requires mutual understanding, respect, trust, patience and, perhaps most importantly, an open mind. Very often signed contracts appear very different than the draft agreement originally negotiated. As we suggest, that’s the nature of contracting and not necessarily a bad thing. Just follow the above rules and things will work out fine.

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