7 Key Negotiation Tactics for Business Owners

“Every moment in a business owner’s day is a negotiation!”

Every time a business owner makes a sale, they are essentially engaging in a business negotiation. Every time they make a purchase, they are negotiating with a supplier to secure the best price possible. And when it comes to hiring employees, they negotiate with candidates to find the perfect fit for the company. Negotiation is the lifeblood of any business, and mastering negotiations tactics is essential for success.

So, what should you focus on to master the techniques of negotiation?

To begin with, always ask three questions:

• What is the other party seeking?
• What is my true cost?
• Is my long-term objective getting satisfied?
• How can we create a win-win situation for both the parties?

Negotiating is more than just haggling over prices. It’s about building relationships, understanding the other party’s needs and wants, and being able to think creatively to come up with solutions that benefit everyone involved.

Negotiation with Bankers/ Investors

Business negotiations with bankers and investors can be complex and require a thorough understanding of financial terms and strategies. It is important to clearly communicate your goals and financial needs and to present a solid business plan and financial projections.

• Do your homework: Research is key when it comes to effective negotiation. Take the time to learn about the bank, the market, and the industry. If you want your bank to extend your overdraft or cash credit limit, research the eligibility criteria, documents that will be required and most importantly what numbers they are looking for in your business.

To extend your overdraft or CC limit, your banker will primarily need the below numbers:

1. Existing monthly Cash-flows
2. Targeted Revenues for the upcoming year
3. Accurate Gross and Net margins
4. Cash-flow projections for the next 6 months
5. Committed revenues

We revised an existing loan agreement for one of our clients, a 20-year-old leading tissue culture company by negotiating with bankers, saving them a fortune. To do this we prepared a business plan, showed visibility in terms of numbers and gave the bank confidence in terms of the future of the company. This led to their interest rate going down from 11% to 9% and a Rs.8,00,000 saving in fixed costs annually.

• Don’t be afraid to walk away: If the other party isn’t willing to meet your needs or the deal doesn’t feel fair, don’t be afraid to walk away. There may be other opportunities that are a better fit for your business. While it’s important to be open to negotiation, it’s equally important to know when to walk away from a deal that isn’t right for you.

Take the recent case of Keto India from the current sensation in the start-up world- ‘Shark Tank India’, where the founder of Keto India was offered Rs 1.6 crore against 16% of the company’s equity. Despite how appealing the deal appeared, he knew the bottom line for the company’s valuation and was unwilling to accept those figures. Ultimately, he has to walk away from the deal.

Negotiation with Vendors

Negotiation with your vendors can be a daunting task. The 4 major factors that you need to consider while negotiating with your vendor are:

1. The Price, of course (Make sure to know your break-even before this)
2. The Quality of Goods/services (as this is what you’d be recognised with in the market)
3. The Transportation terms (along with the logistics cost)
4. Credit terms (probably the most important one as they will determine your cash rotation cycle)

• Know your bottom line: Before you even begin negotiating, it’s important to have a clear understanding of what you’re willing to accept and what you’re not. This will help you stay focused and avoid making costly purchases. Consider creating a list of your non-negotiables to reference during the negotiation process.

Remember, in the 1980s, when IBM tried to buy MS-DOS (the most efficient OS of the 80s) from Microsoft for merely $250,000? But Gates and Allen, the clever geniuses, negotiated with IBM to grab a royalty deal. In 1994, IBM paid $220 million to Microsoft in royalties. (Around 88 times the first offer.)

• Communicate clearly: Clear communication is essential in all business negotiations. Make sure to clearly articulate your position and listen actively to the other party. Your vendors should be aware of what the vision and mission of your organization is and what your long-term objectives are. There should not be any ambiguity in case of the mode of payment, the credit terms or the quality/standards to ensure a good working relationship for the long term.

Even in the Mahabharata, Krishna was the negotiator between the Pandavas and the Kauravas. He didn’t sugar-coat, speak in riddles, or philosophize because he knew that his statement could wage a war.

Negotiation with Customers

As customers are the sole reason for the existence of a business, every business owner should negotiate ethically and provide fair services for mutual benefit.

The key to successful negotiations with customers is to understand their needs and wants, and to come up with creative solutions that meet those needs while also meeting your own objectives.

• Position Yourself as a Solution: The fastest way to get a “Yes” from a consumer, is to understand his needs before you start pitching your strengths. The right set of questions can help drive you towards the conclusion faster.

The first thing that pops into your head when you think about ‘Nike’ is not their shoes, but their slogan – ‘Just Do It’. This is because Nike is showing their customers that they are selling dreams and not just shoes. They are selling a vision to their customers of achieving dreams against all odds.

• Work on a Win-Win Deal: While it’s important to know your bottom line, it’s also important to be open to negotiation. Consider the other party’s needs and be willing to make compromises in order to reach an agreement. Remember, a successful negotiation is one in which both parties feel like they’ve gained something.
• Use collaborative language: Instead of using competitive or confrontational language, try to use language that suggests collaboration and finding a mutually beneficial solution. Words like “we” and “our” can foster a sense of partnership and cooperation.

A smart business owner always tries to build a future relationship. Even in that very static moment, the business owner treats the customer with the utmost respect and makes an impression that will forever be in his mind.

Negotiating can be intimidating, but with a little preparation and practice, business owners can master the techniques of negotiation. So, to all the business owners out there, sharpen your negotiations tactics and step into the arena with confidence, the right mindset and the ability to negotiate like a pro.

Still not prepared to take on the bankers and investors by yourself? Need help negotiating with vendors and coming to a win-win situation?

Don’t have the time or resources to prepare the various reports and the business plan needed for loans/ overdraft/ cash credit, etc approvals?

That’s where we come in!

At Contetra, we have helped our clients prepare their business plan, set budgets, negotiate with bankers, revise loan agreements to get them the best possible deal and implement other strategies to take their business to new heights!

Set up a FREE exclusive call with our team of strategic consultants who will give you effective solutions!

Feel free to book a slot here for a personal one-to-one review with one of our business consultants: https://calendly.com/reachout-_g/30min?month=2023-09&date=2023-09-28