Ten Rules For Negotiating Business Transactions

By George F. Eaton of Rudman & Winchell

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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
 10. 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.