The three key things to think about when negotiating business contracts

The three key things to think about when negotiating business contracts
Enterprise Nation
Enterprise Nation
Enterprise Nation

Posted: Wed 19th Jun 2013

Contracts can inspire feelings of dread in small-business owners, not least because we think of them as complicated legal documents that tie you up in knots and need a solicitor to decipher. But it IS possible to negotiate the contract you want if you're clear and purposeful from the outset._Contracts for your Business_author Charles Boundy spells out the importance of keeping benefits, costs and risks in mind when negotiating business contracts.

Business contracts | Charles Boundy

Whether you expect heavy negotiations or to be dealing on standard terms it's worth planning at the start what you want (and don't want) from the contract, writes Charles (left). This can be done however works best for you; for example, if you like PowerPoint, this can be a good way of being focused and concise. Map out at the outset what you want and don't want from the deal.

The three key considerations to plan for are:

1. The benefits - list all the benefits you expect to get out of the deal

- If you're selling goods or services, this may be money, in which case you'll want to know how much, when and where you'll get it and in what form.

- If you're buying goods or services, you'll want to specify exactly what you expect, what it will achieve and when you'll get it.

2. The costs - what do you expect to do or pay for what you are getting (money or exchange value)?

- What's the basic cost of providing this?

- What else might you have to do or buy in?

- Are you dependent on anyone else and is there another contract you need in place first? If so, take care to link the two or make one contract subject to entering into the other by a given date.

- What about other related costs, such as insurance or on-going equipment maintenance?

- Have you fully factored in the impact of service taxes such as VAT?

3. The risks - what risks can you anticipate?

- What risks do you expect to take, and to what level? Could you resolve these or pay for them?

- Who should bear the other risks, and to what extent?

- If you are selling, what would happen if you didn't get paid? How could you mitigate that risk?

- If you are buying, what would happen if what you buy goes wrong or doesn't perform?

- What else might be likely to go wrong?

- How far can you/the other party get insurance against these risks and on what terms?

- Which risks or liability should be excluded or limited by the contract?

"Don't waste the negotiating effort with a lack of follow-through... it's best to draft at least the outlines as you negotiate."

Breach of contract | Damn it message

How to adopt an effective negotiation strategy

Much of your success will depend on the strategy you adopt for your negotiation. In order to protect yourself from exploitation or agreeing to things you don't really want, follow these three principles: Plan your strategy and follow through. You'll want to be sure you take the benefits of your negotiations through into the contract itself. Don't waste the negotiating effort with a lack of follow-through. Those who like the cut and thrust of negotiation don't always enjoy the contract process, but it can be best to draft at least the outlines as you negotiate. Assert your right to confidentiality. Before you start, consider whether you need to protect confidentiality, either of the negotiations themselves or because you'll be disclosing business information you'd rather keep secret. Be careful who you tell and what you tell them. Make sure any negotiations are 'Subject to contract'. Consider from the start writing: 'For the sake of clarity, our negotiations remain strictly subject to contract until a formal legal agreement has been agreed and signed by us both.' Don't worry if you sound like a lawyer! But do then remember to make sure you get a signed agreement before starting work, as it will be hard to claim that the other party is committed if you've made everything subject to contract! Putting 'subject to contract' won't, however, unmake a contract that already exists, or where one party has already largely performed its 'duties', so the wording is not an infallible escape route. Note that 'without prejudice' means something entirely different. In practice you need only use that phrase if you are negotiating to resolve or avoid a dispute.

Buy Contracts for Your Business from just £5

Charles Boundy's Contracts for your Business offers an easy-to-follow guide to staying on top of contracts and contract negotiations. It's available as both a downloadable ebook and a print book from the Enterprise Nation bookshop. Just click on the link below to find out more and buy your copy. [product id="56581"] Photo credits: Steve Snodgrass (top), base2wave via Compfight cc

Enterprise Nation
Enterprise Nation
Enterprise Nation
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