Ten Rules For Negotiating Business Transactions

I believe the most effective negotiating techniques for business transactions are slightly different than negotiating tactics used in other contexts. Because business negotiations often involve multiple issues and transactions in which the negotiating parties will have a business relationship following the "closing," the negotiator must follow some basic rules to achieve the best result for himself or herself, while leaving the other party equally satisfied with the results of the negotiations. In other words, in business negotiations, a "win-win" situation is usually a far better result for all parties involved than a "win-lose" situation. This is especially true in the negotiation of a joint venture where the parties will be collaborating in a business endeavor following negotiations. It is also true, for example, in the sale of a business where the buyer will depend on the seller for consulting advice, introductions to loyal customers and continuing support in the community or industry in which the business operates. An embittered seller can do a great deal of harm to the buyer of a business following acrimonious negotiations. With these thoughts in mind, I generally recommend the following to clients who ask how to approach the negotiation of a business transaction:

  1. Be Prepared. The best prepared party generally has the upper hand in negotiations. Being prepared includes (a) clearly developed objectives so that you will know what is important and what can be compromised; (b) learning everything you can about your "adversary" and trying to anticipate what your adversary's objectives will be, the reasons for those objectives, and the anticipated means of achieving them; and (c) anticipating areas of disagreement and designing alternative solutions to resolve areas of disagreement. I often advise clients to carry on initial negotiations without an attorney or accountant present, but well-prepared clients will always have reviewed the elements outlined above with their professional advisors in order to avoid being blind-sided by an unanticipated tax or legal consequence.
  2. Negotiate With the Decision-maker(s). Knowing who will be making the decisions is critical in negotiations. Most of us have witnessed negotiations in which tremendous progress is made, only to learn at the end of the day that the party across the table had no authority and was required to report back to management. Sometimes this is unavoidable, but it is often used as a negotiating tactic, and if recognized it in advance, should generally be avoided.
  3. Get All Issues On the Table Before Compromising. In order to follow your strategy and achieve your objectives, you must know what all of the issues are before compromising on any one of them. It is very easy for the other party to raise seemingly small issues, resolving them one by one on seemingly mutually satisfactory terms, until you suddenly realize that you have been painted into a corner without realizing what was happening. If all of the issues are first put on the table, there is a greater opportunity to prioritize needs and design mutually satisfactory solutions to issues. Furthermore, you are less likely to give the impression that you need the deal more than the other party (which is the one thing you should never do in negotiations).
  4. Be Truthful. It may come as a surprise to learn that there is no substitute for truthfulness and honesty in negotiating business transactions. Bending the truth, providing inaccurate information or even outright lying is sure to backfire sooner or later. If the other party loses confidence in your credibility during negotiations the deal will not occur. If the other party experiences surprises following the closing of a transaction in which inaccurate information was tendered, costly legal entanglements will surely follow. On the other hand, truth and honesty, even when it hurts, will win the trust and confidence of the other party (both during and after negotiations) and will give you more credibility when negotiating serious issues.
    Listen and Look Carefully. Listen carefully to everything the other party has to say. Often one word will give away the other party's hidden agenda in a transaction. Sometimes a facial expression will reveal the other party's true position on a point. I have on more than one occasion had the privilege and good humor of observing the other party's attorney state that his client "would never agree to . . ." while his client's expression was clearly suggestive of the contrary. Generally speaking, the more you can get the other party to talk, the more you will learn (in a subtle way) about the other party's true needs and intentions.
  5. Treat the Other Party With Respect. Always treat the other party with respect, even if you have concluded it is undeserved. If the other party senses hostility, discussions will become strained and highly structured and the opportunity to gain critical information from comfortable discussions will be lost. You will be far more effective holding your true feelings about the other party close to your chest and you will not burn any bridges in the process.
  6. Be Sure Each Party Understands the Other. If the parties have reached an impasse, it is important to review the nature of the impasse while at the negotiating table so that all concerned may be satisfied that the impasse is not by virtue of a misunderstanding. I recall one occasion in which the other party's attorney and I were convinced that there was no middle ground on a particularly important issue. Everyone was frustrated and preparing to leave the room. I suggested that because of the importance of the matter, we should review the nature of the dispute to be sure there were no misunderstandings. As the other attorney and I described our impression of the impasse, my client announced that he had apparently misunderstood our discussion of his rights under an arrangement suggested by the other attorney, and that if his enlightened understanding was correct, he was prepared to agree to the other party's terms. The deal was saved. I suspect many deals are lost through misunderstandings.
  7. Understand Who Needs the Deal the Most. I mentioned this above, but it is so important that it bears repeating. Experience tells me that the party who needs the deal the most will give and give and give again. The other party need give little. If you determine the other party needs the deal the most, enjoy the ride. If you need the deal the most, don't let the other party know. This is why rule number 3 above is so important if you are the party who needs the deal the most. Oftentimes the first party to compromise on an important point is the one who needs the deal the most, but the rule is fraught with so many exceptions that I would never adopt it as an ironclad negotiating principle.
  8. Be Prepared to Compromise. This is why having clear objectives and a strategy is all important. In business transactions a spirit of compromise often leads to advantageous business combinations and opportunities. The key is to know where you can compromise without sacrificing your overall strategy and objectives. Bargaining points are seldom equally important to all parties in a transaction. The key is to sort them out so that each party obtains the benefit its most important issues.
  9. Be Unemotional. One should generally be patient and unemotional in negotiations (although I will admit that there are times when one can advantage through outward impatience and emotion). Nevertheless, the point I am trying to get across here is that one should always be prepared to walk calmly away from the table if his or her objectives cannot be met. One must avoid getting caught up in the excitement of completing a deal for the mere sake of completing it even though it's not workable. On more than one occasion I have seen a party pay too much for a business, only to underachieve earnings expectations or default on bank financing later on. Oftentimes the other party will ultimately compromise on an important point once it learns that it was in fact a "deal killer" for the party that left the table. Remember, no deal is better than a bad deal, so don't be disheartened if another party steps up to the plate and completes a transaction with the party with which you were unsuccessfully negotiating.

*George F. Eaton II, Esq. is a partner with Rudman & Winchell. He concentrates his practice in the areas of business planning, corporate and securities law.