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More To Negotiations than Just a Legal Pad
research vital to bargaining
By MARI FRANK
- Orange County Business Journal, February 1, 1993
As owner or prospective owner of
a business, your own negotiations skills will be the critical element determining the
success or failure of the acquisition or sale of a business. Your accountant, attorney and
business adviser should be intimately involved with you as your agents to provide
information, help you create options, and set forth the structure to the agreement,
however you are the principal and you must have the greatest role as a formidable powerful
You must demonstrate the
authority and power to enter into negotiations. There are six sources of negotiation
- Preparation - skill, knowledge and information.
- Legitimacy, credibility and trust.
- Social skills to develop a positive working
- Commitment to resolving the issues to make a deal.
- Creativity in providing alternatives and options.
- Promotion of a satisfying solution that will work
for all parties to the negotiation.
This article deals with
preparation. Skill, knowledge and information are critical to effective preparation.
Negotiation preparation is the key to empowerment, enabling you to influence others to
create the deal that satisfies both your needs and the needs of all those involved. In
order to formulate an effective negotiation, you must strategize for success. Whether you
are the purchaser or the seller, the skills are essential to a successful outcome for both
The following framework may be
used to prepare for a business negotiation:
Critically analyze your present
situation. Do this financially, socially and emotionally. What are your constraints? What
are your long-term goals?
Identify your objectives in
buying or selling the business. To do this you need to consult with family, business
associates, an accountant, an attorney, financial advisers and business advisers to
provide input into the business planning. Identify economic, social and psychological
needs- does this particular business really satisfy those concerns? You must clarify your
desires to design a strategy that will identify the target.
Clearly outline a tentative
plan that sets budgetary limits and defines positions with regard to issues that may arise
in the transaction. Define your reasoning behind those positions (your interests) so you
can create options to satisfy those interests in the event those positions are not
acceptable to the other side.
Investigate and use due
diligence to find out all you can about the prospective business or prospective customer.
Ascertain who the owners and people in authority are. Identify the clientele, the
customers, the suppliers, the competitors and all those who deal directly and indirectly
with the company. If possible, meet with the employees and others associated with the
company and ask open-ended questions to find out as much as you can. Ask for financial
statements, brochures and all other written material about the company - any data
ascertained now will be a great resource to you in determining whether or not to pursue
Once you have compiled
substantial background information, you need to meet again with advisers before you set
forth any proposals or meet formally to begin the bargaining. Brainstorm with experts
about the kinds of questions that need to be answered.
Your power, influence,
credibility and confidence will strengthen as you become more knowledgeable.
Familiarize your experts with
your own situation and ask for information that will provide parameters on positions such
as tax ramifications, financial considerations and legal protection. This may save time
later, when the attorney is preparing or reviewing the proposed contract for agreement.
The more information that you
ascertain and provide for law attorneys and accountants, the better they will be able to
assist you as your agent.
Find out the human side
of the people you will be dealing with. What are their reasons for wanting
to engage in the transaction? Consult with them as well as their colleagues, business
associates and friends to ascertain what motivates them. Ascertain their intention before
anything is put in writing. Have lunch together, play golf or engage in some activity that
allows people to relax, communicate and build trust-- the essential framework far an
effective negotiation session.
Be a better listener
than a speaker. The words you hear will provide you with insight to address the
other side's concerns so you problem-solve together and make a deal workable. No agreement
will be reached if the underlying interests of all the parties are not satisfied.
Begin formulating your
ideas an paper. List the issues that will be involved in the transaction
(i.e., merger, sale of assets or sale of stock, structuring alternatives, broker
involvement, tax ramifications, debts, equity, employees, investment bankers, etc.) Make
sure that you make a comparative list of your issues and the issues that you think are
critical to the other side.
Formulate in writing your
substantive objectives. If you have already ascertained the positions of your
negotiating partner, compare and contrast those, as well. If you do not know their
position, consider what those might be by information that you have received from
others. Determine all interests that need to be satisfied and set forth your
beginning position. It is best to set high expectations so you leave room for bargaining
and compromise-- the closer you are to your bottom line when you begin, the less wiggle
room you have. Set forth what you believe is the most favorable position for your
opponent and what you believe his/her bottom line to be. But do not be persuaded or
influenced by the opponent's possible position-- create potions and alternatives to your
positions assuming that your most favorable position may not be acceptable. Analyze your
best alternative to a negotiated agreement and be willing to walk away and say no, if
there is no meeting of the minds or no creative options that will meet the interests of
objectives. Make arrangements for the negotiation to be at a time, place and
atmosphere that sets forth the most favorable of circumstances for all concerned.
Prepare written documentation, letters of intent, statistics, financial information, all
relevant documents, tax returns, etc. and objective information when ever possible to back
up your position. Have every document organized, and formulate a list of questions that
you need to ask. Prepare yourself emotionally, physically, and dress appropriately
and professionally to set up the ambiance of professionalism.
Make note of factual
considerations. Some things that the parties will consider in the business negotiation
are: tax planning, estate planning, liquidity, cash, negotiable debt, non-negotiable
debts, secured and unsecured debts, equity, equity-value protection, how well prepared the
financial and corporate records are; what kind of lawsuits or contracts are involved in
the potential sale or purchase of the business. The effectiveness and success of
your negotiation will be determines by your readiness. Your skill, knowledge and
information derived from your preparation will give you the legitimacy and credibility to
build the relationship and produce a satisfying agreement to accomplish the actual
consummation of the transfer. Although your attorneys, accountants, investment
bankers and management have a duty to due diligence, you as the owner or prospective owner
of the business have the highest duty of all to yourself and to your business or
prospective business to be a part of that due diligence. You have the tools to become a
formidable, powerful business negotiator by making the effort to prepare for the process.