What Is a Business Deal? (And How To Negotiate One)
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Business deals are a common component of operating a company and can come in many forms and sizes. A business deal could entail hiring an independent contractor or two large companies merging. Understanding business deals and having the negotiation skills to navigate them effectively is an important element of operating a business for anyone, including employees, freelancers and small business owners. In this article, we explain what a business deal is, list its advantages and provide steps for negotiating business deals properly.
What is a business deal?
A business deal is an agreement between two or more parties who want to enter into some sort of business arrangement together. The most common kind of business deal is when one party is selling something like a product or service and the other party wants to buy it. For example, hiring a photographer for your wedding can require a business deal. One company acquiring another is a larger type of business deal.
Some business deals, especially between small businesses or people who have previously worked together, can be informal. Negotiations might occur over a few emails or a work lunch, and it might conclude with a handshake instead of a contract. With informal business deals, it can still be helpful to codify the deal in writing as an email or basic contract. For a larger business deal, it's often important to approach it formally with extensive negotiations, contracts and lawyers.
What are some advantages of a business deal?
Business deals of all sizes can be advantageous because they allow sellers to guarantee payment for their work, and buyers receive a product or service they need. A business deal can help two companies work together in a way that makes it easier and more efficient to use both parties' resources. For example, if a restaurant drafts a business deal to buy produce exclusively from a certain supplier, that deal could secure the restaurant a large discount or priority service while the supplier experiences guaranteed regular sales.
Business deals can also be useful when a company has a task that requires completion yet doesn't fit into any current job descriptions nor justifies creating a new position. One example could be a small business that needs to regularly ship products to customers, but its employees focus primarily on production, marketing and customer service. The small business could create a business deal with a courier service to pick up, pack and ship its products.
How to negotiate a business deal
Here are several steps that can help you navigate the negotiation of a business deal effectively:
It's often helpful to enter negotiations with all the resources and information you can find. This can include researching the other party by reviewing their website and customer testimonials to understand their business practices and priorities. That kind of knowledge can help you decide whether you want to make a deal and what kind of deal the other party might find most appealing. Similarly, it's beneficial to gain information on the individual with whom you plan to negotiate.
It can also be helpful to consider separate business deals that the other party has completed to determine the kind of terms they've agreed to in the past. You might not always be able to attain this information, but it's sometimes publicly available. Try to check the offers or prices you might be able to get from their competitors. Having this knowledge can give you greater negotiating power because the other party might want to beat their competitors' prices.
2. Identify your priorities
Before you begin a negotiation, it's important to know your priorities for the deal. Try to identify your non-negotiable aspects, such as your lowest or highest acceptable price, a particular deadline or certain legal clauses you want included in the contract. Consider also identifying the elements that matter to you the least, as you can use them during negotiations by conceding on a point that matters to the other party but not to you. That concession sacrifices little for you but can impress the other party.
3. Understand the decision-makers
You might not always enter negotiations with the person at a company who's actually authorized to complete a deal. This may be common in the early stages of negotiation or if it's a straightforward business deal where you and the other party have already agreed on the main points and the negotiations relate to minor details. It can also slow negotiations if the person you're talking to has to ask someone in a higher position about each offer you propose. Whenever possible, work directly with someone who has the power to make decisions and complete negotiations.
4. Consult with a lawyer or other adviser
Unless you possess experience with business deals and knowledge of related logistics, it's often important to work with a lawyer. This may not be as necessary with a smaller or informal business deal, but it's essential in large deals. Having lawyers involved can ensure that you attain a fair deal and don't miss opportunities to add beneficial clauses to a contract. Lawyers can also handle the paperwork for the deal and act as mediators during negotiations.
5. Consider dynamics
All parties involved in a business deal might not be entering negotiations with the same level of urgency as you. It's helpful to know if you're negotiating with someone who needs the deal, especially if you don't need it because it gives you greater bargaining power and can result in a better deal for you. Other important dynamics to consider for both you and the other party are deadlines, alternatives and competition.
6. Establish a positive and collaborative tone
Negotiations often achieve an efficient conclusion and result in better outcomes if approached with positivity. Try to avoid demanding language or interrupting the person with whom you're negotiating. Instead, consider employing tactics like asking questions, active listening and offering ideas to improve the deal for their side and yours. If you show that you want to collaborate on the negotiations, the other party may reciprocate and remain open to your suggestions.
Related: 9 Tips for Being Positive at Work
7. Actively listen
It's important to listen to what the other party has to say and understand their ideas and priorities. This helps ensure positivity, and it also teaches you more about them. For example, you might discover that the most important aspect of a deal to them is publicity, so you can offer to help boost publicity in exchange for something that matters to you. This shows the other party that you listened and that you care about making the deal beneficial for them as well.
8. Ask questions
Asking questions during negotiations can be highly informative because the other party's answers can offer you insight into their priorities. Try to ask open-ended questions since they're more likely to result in valuable information. Here are a few examples of effective questions to ask during business negotiations:
Is this the best offer you can give me?
What's your ideal timing for this deal?
What else can you include in the deal?
How does this deal benefit you?
What assurances can you give me that your product or service is the right choice for me?
9. Ensure balance
Concessions are a normal part of negotiating a business deal, making it important to know what you're willing to give up. Even when offering something relatively small, like a clause that could make the deal more convenient for the other party, make sure to also attain something in return. This could entail the other side making their own concession to match yours or adding something of similar value. Only conceding when you also earn a return shows the other side that you're willing to be flexible but have limitations.
10. Clarify details
Throughout negotiations, consider continually clarifying the details of the current offer. When you ensure everyone understands the offer throughout the entire process, you can avoid miscommunication or misunderstandings. It's also beneficial to maintain written documentation of details as they change, especially if negotiations occur over multiple meetings, so there's always a record of the current offer and what you or the other party have conceded or added to the deal.
11. Set a deadline
Before entering negotiations, try to decide on your own timeline for the deal, including your ideal timeline and the longest timeline you're willing to accept. Communicate with the other party about their timeline and try to set a deadline that's appropriate for both of you. Deadlines are important because it highlights your seriousness about finishing the deal. Try to ensure that you and your lawyer respond to the other side promptly so the deadline is easier for everyone to meet.
12. Gauge offers carefully
It's common for the first offer to not be the final offer you accept, even if you and the other party only make minor changes to a deal. It's important to carefully consider each offer you receive, gauging the advantages and disadvantages. An offer might include a good price but asks you to concede on one of your key priorities, making you decide which is more important. It's also beneficial to recall the research you conducted before negotiations on the other party's competitors and decide whether you want to pursue a better deal with them.
13. Veto the deal if needed
If you want the best possible deal, you may have to stop negotiations. Sometimes, parties involved in a business deal want drastically different outcomes, making it difficult to find an offer that benefits everyone. Try to decide as early in the process as possible if you think the deal might not work so you can save time and legal fees and start pursuing the next deal.
14. Make an offer that benefits both parties
Negotiating parties often want an offer that's as beneficial as possible for their side, but it's important for it to benefit the other party as well. This is because someone is more likely to accept an offer when it's a good deal for them, too. It's also important because you might work with that other party again in the future or with someone who knows them. Striving for the best possible deal for both parties helps to form a business relationship that can benefit you later.
15. Codify the deal
If a contract is involved in a business deal, it could take time to finalize. To protect the deal and your interests, try to secure written proof of the agreement as soon as everyone settles on an offer. This could come in the form of an email or a signed, non-contractual document containing details of the offer.
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