The success of your small business depends on making smart deals that expand available resources and enable continued growth. Just as important are the deals you walk away from — thus avoiding costly mistakes that waste time, consume energy, and threaten to derail your success.
Here are some tips for recognizing potential red flags the next time you enter into negotiations with a vendor, contractor, or other service provider:
Allowing Suppliers to Name Their Price
It’s not uncommon for a business owner to ask vendors for a suggested “starting price” ahead of contract negotiations. But when you accept the price a vendor names without question, you immediately lose leverage in the upcoming conversation. Regardless of your planned budget, the vendor will likely decline to accept a lower quote when negotiations begin.
A better approach is to provide a range of what you’re willing and able to pay, so it’s clear that while there’s room for negotiations, you’ve set a ceiling on what you’ll pay.
Not Understanding Technical Details of a Contract
You can’t expect to know more about a particular aspect of business operations than the vendor who hopes to provide that necessary resource. If, during negotiations, you feel you’re not fully grasping the technical details of the contract — for example, if you’re seeking to outsource payroll functions and you don’t understand the vendor’s proposed options for employee timekeeping — you may need to reach out to a knowledgeable third party who can review the vendor’s proposal with you and explain it in lay terms.
Before you meet with vendors, learn the jargon associated with their field so you know what they mean when they use it in discussions. This will help you frame the conversation in terms that make more sense to you.
Experiencing Discomfort With a Vendor’s Unreasonable Demands
Does the person you’re dealing with appear overly anxious to close the deal? Is a potential supplier exerting pressure to sign a contract on the spot, rather than allowing you time to review the proposed agreement before you sign? Let’s say the vendor wants you to sign a non-compete agreement as part of the contract, limiting your options even after the deal expires. Such unreasonable demands hint at more aggressive requests to come as part of any future relationship with this vendor.
Be prepared to walk out on negotiations if need be, in which case the supplier may be motivated to eliminate unreasonable requests to close the deal.
Suspecting a Discount Is Too Good to Be True
Always look closely at any discounts vendors propose that seem too good to be true. A discount is only as good as the overall price offered. For example, if an IT provider offers you a hefty discount on a comprehensive package of services, look closely at all the contract requirements and conditions. The discount could end up costing you more in the long run if that provider charges high prices for ancillary services, such as on-site support or additional software solutions.
Agreeing to a Contract With “Iffy” Provisions
Beware of contracts with questionable auto-renewal clauses or provisions with prenegotiated price hikes. An organization offering to outsource human resources and employee benefits, for example, may want to include an evergreen clause wherein its services are automatically renewed if you fail to formally cancel the agreement at a specified time. You could end up paying for a service your business no longer needs.
If provisions seem “iffy” to you, don’t hesitate to ask for what you want to achieve terms more beneficial to you. Identify specific elements in the contract that you know will improve your business operations and request they be included. Most suppliers will be reluctant to walk away, knowing you can negotiate with other potential providers. In any case, you’ll avoid spending money for something of no benefit to your business.
Going into Negotiations Unprepared
The more you know prior to negotiations, the stronger your position will be. Take time to research the other party and learn what you can about how representatives might behave during discussions. Talk to other businesses who have dealt with that supplier before. With this information in hand, you’ll be better equipped to propose compromises of greater advantage to you.