How to Negotiate : The Beginner's Guide To Saving Money, Gaining Confidence And Getting Great Deals 9781908003416

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How to Negotiate

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How to Negotiate the beginner’s guide to saving money, gaining confidence and getting great deals

by Chloe askwith

An Enterprise Nation book www.enterprisenation.com HARRIMAN HOUSE LTD 18 College Street Petersfield Hampshire GU31 4AD GREAT BRITAIN Tel: +44 (0)1730 233870 Email: [email protected] | Website: www.harriman-house.com Copyright © 2012 Harriman House First published in Great Britain in 2012 The right of Chloe Askwith to be identified as the Author has been asserted in accordance with the Copyright, Design and Patents Act 1988. ISBN: 9781908003416 British Library Cataloguing in Publication Data | A CIP catalogue record for this book can be obtained from the British Library. All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publisher. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without the prior written consent of the Publisher. No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading material in this book can be accepted by the Publisher or by the Author.

Contents About the Author

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Introduction

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1.

What is Negotiation?

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2.

How Will You Benefit?

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3.

Just Before We Get Going . . .

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4. Take Action 1: Do Your Research

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5.

Take Action 2: Work Out What’s Really up for Discussion (Your ‘Variables’)

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6.

Take Action 3: Work Out the Deal You Would Like

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7.

Take Action 4: Negotiate

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8. Take Action 5: Agree a Deal

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9.

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Communication Tips

10. Sales Techniques and How to React to Them

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11. Meetings

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12. What to Wear and Body Language

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13. Keep Those Relationships Going

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14. Your Profit Margin and Cash Flow

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15. The Language of Negotiating

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16. Steps to Successful Negotiation

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17. Useful Links and Worksheets

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about the author CHLOE ASKWITH is an experienced negotiator and working mother. Chloe has worked for over 15 years in film and television both buying and selling across Europe the Middle East and Africa. She has experience of working with large corporations and small start-up companies with deals from a few hundred pounds to many millions. While having a large amount of negotiating experience, Chloe also understands the needs of start-up businesses first-hand. www.negotiationcafe.com

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introduction BEING ABLE TO negotiate well, and understanding how deals are done, is an essential skill for business owners, particularly those starting a new business. Not only will it have a direct and positive effect on your bottom line and all-important cash flow, i f you feel you are representing yourself well you will have more self-confidence, and that ultimately means running a better business. I have been working in the media industry for over 15 years, negotiating rights for film and television. During this time I have been a buyer and a seller, and I have been fortunate enough to work with clients from every territory across Europe, the Middle East and Africa on deals ranging from a few hundred dollars to many millions. This has given me a great perspective on the ins and outs of successful negotiation – that’s what I aim to share with you through this book. I hope you find it useful. Please get in touch with any questions, and visit my website for more information: www.negotiationcafe.com.

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1. what is Negotiation? WHAT DOES THE word negotiation conjure up for you? It makes me think of Denzel Washington in a darkened smoky room, of tense hostage situations – or lengthy peace talks. It also comes across as a word that definitely belongs in large, unfriendly boardrooms. I have been working in the world of negotiation for many years, and have come to understand that it is really a way of communicating where there are some set rules. And instead of being something reserved for specialists, it is a skill that can be learned, and is relevant and useful to all of us. If you have a small business, or are considering starting one, there is a huge value in learning how to negotiate properly. Negotiating between two people is finding an agreement that both are happy with. This is not just about setting a price. It is more than that. It is putting in time and effort to make sure that you and the person or company you are dealing with would be more than happy to come back and do it all again. As so many books and courses put it, you are looking for a ‘win-win’ situation. By working through this book you will be finding solutions to make people happy. Some negotiators are naturally good at doing this as they can think widely and find creative ways to problem solve. Others can work through some basic steps to get to the right agreement. It is a way of thinking and working that you can very easily pick up.

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How to Negotiate

In this book I am going to show you:

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how you can benefit from negotiating

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the preparation you need to do before you start discussions

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how to get started, with a step by step guide to how to get a good deal

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what to expect when negotiating

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how to continue by maintaining strong relationships with your clients

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tips on language to use, what to wear and what to do in meetings.

2. How will You Benefit? IF YOU ARE going to be successful at getting your own way (that’s essentially where we are going here), you need to be clear about what you can get out of the whole process. It’s essential for both motivating and directing your efforts.

Save money There are many ways to get yourself the right deal. It all depends what your needs are and finding out what is important to your supplier. By helping them you could, firstly, save yourself money. Spending some time building a good relationship with your supplier is one key to this. Talk to them and find out when they need to complete their sales for the year. Do they have targets to hit? If you help them to get to the right number will they give you a good deal? Making a large order to get a volume discount is a classic variant of this. You could also save yourself money by getting a supplier’s agreement to spread your payments, thus helping your cash flow and avoiding an overdraft. Lastly, you could save by setting prices with your supplier for the next deal, when prices would otherwise rise.

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How to Negotiate

Feel confident Knowing how to negotiate also means a confidence boost. If you are well-prepared and have a set of rules to follow in striking deals, you will feel much more assured when you go into a meeting – even in a large boardroom on your own . . . When you have achieved your goals, and both you and your clients are happy – that is a really good feeling! Closing a good deal, whether buying or selling, where everyone is happy makes life more pleasant. It feels good to do a good job.

Make friends Effective negotiation means building, not burning, bridges. A definition of a good deal is when no one leaves the negotiations either feeling ripped-off or regretful in any way. Both parties need to feel like they could go through it again. Building relationships with people gives you and your business security. You may even find more business by getting to know your customers and suppliers better. And by building on your relationships with suppliers you will get to know more about all aspects of your business and the chains that feed into it: this could help you run things more efficiently or spot the next big opportunity in your niche.

QUICK TIP: Make sure you send Christmas cards (or e-cards) to as many people in your supplier’s company as possible, including receptionists. gain respect Learning to negotiate effectively is an opportunity to put some structure into your dealings if you have employees, or establish some steps for you to follow each time if you are a sole trader.

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1. How will You Benefit

Here are some examples: •

decide how you will communicate (by phone, email or in person)

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draw up forms for your proposals and deal memos

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mark opportunities to send thank-you cards and gifts

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decide whether to be formal or relaxed in the way you communicate.

You can also define a company image – not in the design sense, but in the way you want to come across, and in your style and manner of dealing with other people.

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3. Just Before we get going . . . Some golden Rules AT THE CORE of negotiation is learning how to communicate well and find out what the other person wants to get out of the deal. If they are not familiar with negotiation they may not realise that it is always possible to work together to find a deal that everyone is happy with. (It just takes a lot of tact and perseverance sometimes!)

1. Listen You need to be a good listener. Give the other person time to talk and don’t be scared of leaving gaps in the conversation. Sometimes people fill the gaps with conversation and give things away about themselves or their company that are useful to know. The aim of listening well is to find out what is important for the other person. For example, you need to know if it would benefit them to have a payment in the following tax year, or if they do or don’t have cash flow problems. If you can find out how easily they deliver, if they pay other people for delivery or deliver themselves – all these types of things add to your knowledge base, and allow you to propose terms that make things more tempting for them.

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How to Negotiate

2. Communicate clearly It is important to remember what you have said during your conversations, to keep a note of this and not to change your mind at a later stage. Always be sure that you are comfortable with what you are offering. Repeating it is fine. But you can’t keep changing your mind. When you are communicating there are some particular words that are helpful to use (and avoid) which I will cover later in the book.

3. ask questions Do ask questions! You will have realised by now that it is very beneficial to find out as much as possible about the company and people you are dealing with. It is useful to couch some financial questions around easier, friendlier ones first. Always write down what you would like to find out before you pick up the phone, or make a visit. For example, if you would like to find out if a company is relatively stable: •

start off by telling them a bit about your circumstances, in a friendly way; try to engage the person on the phone

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ask them what their company is like, how long they have been around

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ask them if they have been working there for a long time

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ask them where they are based

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ask whether you can go and see them.

Share some information about yourself as you go along. When you are further into discussions, ask why they have offered you a certain price, or why they are not interested in giving a discount if you take some of the delivery later in the year (for example). You can learn so much and get some ideas of your own.

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3. Just Before we get going . . .

Building a long-term relationship with your client or supplier is really important, so be friendly with your questions. If possible, go and see them and have a chat over coffee. Share your own experiences with them.

4. Become a negotiator Never say yes to something straight away. There are a couple of reasons for this. The first one is that it’s always useful to go away and think about an offer. You may have forgotten something. The second reason is that both of you want to feel that you have got a good deal – if you bite someone’s arm off at their offer they will immediately suspect that they should have charged more. Never give something away for nothing. In other words, don’t agree to a higher price or don’t agree to accept something (e.g. an additional amount) in order to get the deal closed quickly. Always ask for something in return.

QUICK TIP: If you would like to accept something, remember to use the word ‘if ’. ‘If I pay you 50% up front, what can you do for me?’ or ‘If I accept that price, what can you do to help me with deliveries?’ 5. Build relationships Developing a lasting business relationship is a key goal of negotiating. When you have some strong partners in business, your life will be much easier. Always bear in mind that if you construct a deal that both parties are happy with this is a good building block for future deals, and you are likely to do more work together in the future. If the deal you are doing is definitely a one-off opportunity and there is no chance you will work with the company again, these rules don’t apply, and you should go for the highest price you can! (This is not really negotiating.) 18

4. take action 1: Do Your Research BY DOING YOUR research you will learn a lot about the market as a whole. This will really help to increase your confidence when talking to suppliers. Often business people are expert at the products they make or sell, but not the services they buy. This helps remedy that.

what to Research I am going to divide the research into two sections. The first is getting to know the deals you have already done. The second is about the market as a whole. Make a list of all the deals you have done in the past the year, both buying and selling. The aim of the game is to improve each of your deals in some way.

Past deals 1. Create a chart and keep this up to date every time you buy or sell something. Include the following: •

name of supplier with all their individual contacts and details (address, phone number, email etc.)

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the product that you bought from them

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the total price paid, and the price per item

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How to Negotiate

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the delivery details – when was it? who paid for it? was it on time?

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the date of the deal, and date of delivery

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keep a record of how the deal went – was the supplier easy to deal with? Were there any problems?

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Are their products particularly good/bad?

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What payment terms did you agree on?

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Did you draw up a contract?

If you do the same for all your purchases, you will have a constant reminder of each deal completed. 2. Start with the deals where you spend the most money and therefore could make the largest savings. Undertake cost comparison. Find the companies who supply the same product in the Yellow Pages/local paper, by doing an internet search, by asking contacts if they have any recommendations, by checking business directories. Create your own picture of the market. This way you can really see the market pricing – the highest and lowest prices. I find it is really helpful to put all these numbers in a spreadsheet or chart where you can compare them. It may be the way my brain works, but if I don’t have everything written down in front of me I find it more difficult to see a pattern and work out what the most reasonable price is.

Quality Search the internet for information about similar items: always take a look through forums, check for complaints, and see if any other information pops up – court hearings, for example. You never know. You can also take a look at Companies House (www.companieshouse.gov.uk) information about the company to make sure they are a bona fide registered company if you are concerned about paying an amount upfront. For a few pounds you

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4. take action 1: Do Your Research

can also have access to company reports, which may be worthwhile. Alternatively, go to www.companycheck.co.uk, where you can get a quick overview of the financial status of a company and a list of directors. If you are ordering a product, ask for samples to check the quality. Always find out if you will need to send them back, and who will be paying for the return postage (it should be them!).

experience of your competition It is very useful to get to know the competition and befriend them. If you are on good terms with them you can ask them about their experience with suppliers. This may help may glean some very useful information such as the quality of a supplier’s products, their condition on delivery, the politeness of sales staff, the payment terms and so on. You may even find out the rate your competitor paid. You will need to share some information yourself. Decide before you approach them what information you feel comfortable sharing.

Your Findings List all your findings so you can easily compare potential suppliers, and so that the information is easy to access. Here is a summary of the kind of information we want to gather together in our findings: •

possible suppliers

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their pricing (choose a few specific items that will tell you how they position themselves in the market)

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volume discount

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delivery terms

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payment terms (you may not know this yet)

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where they are based

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How to Negotiate

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how many sales people there are

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whether they are a small company

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how they position themselves – high quality or the value option?

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whether they provide good quality products

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whether they are good with detail

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whether they have any major clients

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whether they work with local companies

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whether they have an environmental policy

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whether they do much marketing (take a look to find out if they have a website, blog, newsletter, print marketing, advertising in local press)

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whether they mention clients in any of their marketing

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whether they have a referral or affiliate scheme

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reviews or comments online about the company or service

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whether they have flexible opening hours.

Consider the pros and cons of each company. If they have other big orders, they may not be able to supply at short notice. They may have cash flow problems, but that might mean they can be very flexible with deal terms and very understanding of a new business like yours.

QUICK TIP: This research may be timeconsuming but it is definitely worth it. Keep all your information in one place and just gradually build on it. Always bear in mind the savings that you will make. Trade magazines normally provide useful business news for your sector. Another way to find out more about your marketplace is to

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4. take action 1: Do Your Research

look at Mintel, or other market research agencies who sell information. At www.mintel.com you can find reports about competitive intelligence, market intelligence and then trends and product innovation. The reports are quite broad, but can give you a good start to your research and provide a solid overview of the market. Similarly you can get a broad picture of the market you are looking at through various companies like www.marketest.co.uk, who run surveys for market sectors.

trade events Are there any trade fairs in your sector? You can find out a huge amount by looking through lists of exhibitors. If you attend a trade fair, set up some meetings and set yourself some questions you want answered in each meeting. Again, if you select the right event, you can get quite a lot of information at one go. My tips for trade events: •

find out as much as you can about the attendees before you go

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book meetings before you go

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book short meetings

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have a short pitch prepared to introduce yourself

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remember that the people you are meeting are probably seeing lots of people in one day!

Obviously, it is not always cheap to attend a trade event. Prices to attend a trade fair vary from £20 up to several hundred pounds. As a first step I would take a look at the list of exhibitors. This is normally available online. You can contact people via this list and start your research in this way. Contact the companies that are most interesting to you. Ask to set up a meeting, to have a coffee, or get a time when you can drop by their stand. If you don’t do this in advance it can be difficult to see the people you want. You may waste very valuable time waiting around.

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How to Negotiate

Try to fill up your diary as much as you can. You won’t need to book in long meetings, just half an hour to make contact and find out a little about the company is normally enough. You can pick up with any detailed discussions at a later date. At the end of this book I have included some web addresses where you can find out about trade fairs for your business sector.

Trade fairs are often in very large conference centres. If possible, get a map of the stands before you start making meetings, and plan them in order of the layout, so you are on time for your meetings and you don’t have to run from one end of the room to the other. And . . . wear comfortable shoes! QUICK TIP:

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5. take action 2:

work out what’s Really up for Discussion (Your ‘Variables’) THE CORE OF negotiation is discussing all the moving parts or ‘variables’ of each deal.

what are Your Variables? Alongside the price this is everything else that is included in the discussion. If you were buying a car it would be the price, model, age, number of doors, insurance, warranty, metallic paint, tank of fuel, MOT . . .

general variables Whatever the business of the deal you are discussing, there are a set of criteria that you can discuss. Normally these include: • • • • • • • • • •

timing quality quantity payment terms cost commission insurance any warranties after sales care of any sort any extra bits you can add on (e.g. additional time for lesson, or a more complex design on a cake). 26

How to Negotiate

timing This is about delivery of the goods you are ordering. Do you want them as soon as possible, or some now and some later? Remember that storage and delivery both cost money, so how this is arranged is very important and could add to or reduce the final bill. Don’t just ‘take it all now’ because it seems the easiest thing to do. Timing can also be seasonally affected. Orders logged at busy times can take longer to fulfil. If something is time-dependent, be sure to order it in advance to avoid disappointment. If there’s something you order like clockwork, it could be a chance to save money. For example, if you place the same order for apples in September every year, you might be able to put in a rolling order for the next five years (there are always safeguards you can establish in case your circumstances change). You should get a fixed price for this which will help you with your budgeting.

Quality If a supplier has a range of stock with different prices, you have a chance to make some saves or gains – if you agree to take products that may not be top quality you can gain in another area.

Quantity The more you order, the cheaper unit price should get. Delivery should get cheaper too (again, per unit). Watch out for storage costs and make sure you can use everything you buy. You can always buy a larger volume than normal and see if a supplier will let you delivery at a later date.

Payment terms Payment terms should always be discussed as they will affect your cash flow. You could offer full payment on delivery or you could give 27

5. take action 2: work out what’s Really up for Discussion

a large deposit if you have a good cash flow. You should get something in return for either of these, as they’re a great boon to your supplier. Normally you will benefit from delaying payment as much as possible. Look at your cash flow and work out carefully what would benefit you most – a discount for paying early, or delaying the cash going out.

Cost The ability to negotiate on cost varies. Some suppliers can afford to be more flexible than others. In some cases there is no room to move, so the negotiation will be more about getting a good deal in other areas. Your market research should help you if there is flexibility on price. We will talk in the next chapter about coming up with a minimum and maximum price that you can accept.

QUICK TIP: Try to find out how supportive the company is of new businesses. Some companies are particularly open to supporting new companies and will help as much as they can with deferring payment in the first year, giving additional training etc.

Make a List of Your Variables You need to give some thought to what the variables are in your case. It is very important to make a list of these and think about which ones are important before you start a conversation with anyone. I suggest starting with: •

price

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volume

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payment terms

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How to Negotiate

•

other products

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location

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delivery

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commission

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after sales service of any kind

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insurance/warranties

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additional touches.

Ask yourself: •

Is anything fixed in my deal?

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Is anything up to be changed?

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Are there other factors that can be brought in that may be beneficial to me?

•

Also, list any factors that may be beneficial to the other company.

You can then go back through it and work out which things are the most important to you, which are ‘nice to have’ and which you don’t really need at all but you could use in the deal process.

QUICK TIP: Remember that the other company doesn’t know which things you really want and which you don’t really need. During a negotiation the best result is to get something you want in return for something you don’t want that much. example If you are buying a service online (for example, advertising space), ask yourself every possible question you can about the deal so that you identify the variables. These may be:

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5. take action 2: work out what’s Really up for Discussion

Try to think as widely as possible to ‘enrich’ the deal. 30

6. take action 3:

work out the Deal You would Like AFTER YOU HAVE done your research and decided what points can be variables, the next stage is to work out what you would really like to get from the deal.

Do your numbers You need to work out and have to hand: •

your cash flow projections (this can be as simple as how much money you have in the bank)

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your profit margins on each product (and overall)

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how much you spend per year on all your supplies

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how it would benefit you to spread payments

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what volume of the product you can store.

QUICK TIP: I really recommend getting to grips with spreadsheets as it makes life much easier when you are working on your numbers. Brush up on those Excel skills! (It may sound like I don’t have the most exciting life, but I love a good spreadsheet!)

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Remember how much you already know. You have done your research, and you have some idea about the company and the market landscape. You may know what a good price should be, and you have an idea of what you would like to pay. You may also know if the company is likely to help you in any area. The next step is to look at the variables you have identified, and decide what would be a really good result for you, and what would be the least you could accept.

QUICK TIP: Remember your lowest number may change if you alter payment dates. When you have worked out the best result for you, and the worst (but still acceptable), you have established a range that you can work within.

example The easiest example to use to illustrate how to arrive at your best and acceptable price is to think of buying a car. You have a maximum budget of £10,000. You have a minimum budget of £7,000 as you know that below this amount you will not be getting the quality of car you are looking for. So within the range of 7,000 to 10,000, you would like to buy your car. Your other needs are:

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6. take action 3: work out the Deal You would Like

essential •

Four doors

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Two-year warranty

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MOT

Nice to have •

Red colour

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Full tank of fuel

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Metallic paint

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Taxed for 12 months

example Another example would be if you were buying kilos of sugar. Our acceptable range may look something like this. •

Total price: £105 (minimum) to £150 (maximum)

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Volume: 150 kilos (minimum needed) to 250 kilos (maximum I can store)

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Price per kilo will be: between 70p and 60p (I will pay less for a larger volume)

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Number of deliveries: between five and 12 (can be flexible with this)

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Time period for deliveries: five months to 24 months depending on volume ordered

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Payments: two months after delivery for each batch (some flexibility here)

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How to Negotiate

Other points outside the ‘range’ that you could bring in are as follows: •

Quality: best brand – you are not prepared to be flexible on this point.

•

Additional value: can they give you some marketing coverage in their newsletter?

•

If they insist on a price of £0.75, go for a lower volume, or suggest that they include you in some of their marketing if they have a good newsletter that reaches your market.

•

Alternatively you could look at other products they supply.

You need to work out the maximum price, the best deal, and where you think you will get to. The maximum price is your most important piece of information. As a buyer, you always have to hand the number you cannot go above.

QUICK TIP: When you have these numbers written down you will be able to discuss a deal with confidence. Write down your range and keep it with you. Understanding your finances and how they work is extremely useful. If you need more help with this area, I have expanded on it later in the book. When determining your range, never forget your profit margin. It has to still exist. Remember that every penny you save below your maximum goes towards your bottom line.

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7. .

take action 4: Negotiate

where to Start START WITH THE company you would most like to buy from, find out the name of the right person, and get in touch. Call them if possible, and send an email afterwards to confirm your contact details. Give the sales person a brief introduction to your company. Present yourself in a way that is clear and concise. For example: “Good morning, we haven’t met before, I am the owner of Lucy’s Children’s Cakes, we are based in the Liverpool area and specialise in making and icing children’s birthday cakes.” Have some facts and figures at your fingertips in case they ask questions – how long you have been in business, and your main or repeat clients. If you are a new business, say that you are starting up and share your expectations for the coming year. Being prepared for the call is important. Have all your facts and figures written down in front of you. I’m sure the sales person will be happy to tell you about their company and what they have to offer. Let them know how much you would like to buy as a one-off amount so they can price this up. Set up a meeting. You can always indicate that you are looking for a longterm supplier if any encouragement is needed.

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Good things to ask at this stage: •

if you are a new business, ask if they support new business and if they work with any other start-ups

•

ask if they are flexible with terms; you can gauge how far you may get with your proposals

•

if you have some gaps in your research, ask a few questions that are appropriate, but don’t bombard them with too many questions.

QUICK TIP: The sales person will probably ask lots of questions. Try not to give away too much regarding your deal, just the quantities you would like to start discussing. Don’t reveal all your plans at this stage. Part of effective negotiating strategy is to make sure you always have things left to offer.

Make Your offer In presenting your first offer, you will be trying to get to your best result. Don’t make the offer too low, but make sure there is a bit of ‘wiggle room’ included. By this I mean be brave and definitely offer lower than your lowest point so you can go up a bit. Expect them to say ‘no’ to your first proposal. You can make your offer on the phone, in a meeting or by email. However you communicate, follow up afterwards with a formal offer so it is very clear and nothing can be misinterpreted. emails It is going to be your call as to whether you email your offer to them, or if you discuss it in a meeting (on the phone or in person). If you 37

7. take action 4: Negotiate

don’t feel too confident about saying it all to someone directly, it can be easier to send an email before or after a meeting. Always call them to give a quick overview of the offer if you are not meeting up. in a meeting If time is on your side, talking through your offer in a meeting is a good thing to do. You can gauge their reaction and get instant feedback on some of your ideas. You may be asked about all the points of the deal, so make sure you have all the necessary information with you. I find it can be easier to send the offer in before the meeting. Then you have something concrete to go through at your meeting. If you present it for the first time at a meeting they will not have time to consider their answers, and progress will really depend on how big the deal is and if they can make a decision on the spot. on the phone If you would like to talk through your offer on the phone first, make sure you are very clear. Go through the points as they are laid out in your offer on paper. Make sure you write everything down and send a recap as you will need something to refer to afterwards. Be aware that it sometimes depends on how large a company is as to how open it will be to amending its publicly stated prices.

QUICK TIP: Remember, even if the price is fixed, you may still be able to negotiate on other areas of the deal. If you get good terms for areas other than the price (e.g. delivery or payments) this can save you money too.

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How to Negotiate

work out an agreement (First of all, review the golden rules in chapter 3.) You may be quite far apart in your expectations to start with. The challenge now is to work through the variables and find where you can agree. If the supplier doesn’t agree to your offer, make sure you defend it before moving on. Explain why it is a good offer, and why you would be a good customer. This is not really the traditional role of a buyer, so you need to think about where the power lies, and how much you need to work on this (see below). Work through your list of variables to find out where you can keep your offer as it stands, and what you need to reduce or increase. Try to understand their perspective and what the most important variables are to them. Be clear with what you need. Ask them questions, try to find out as much as possible about what areas of the deal they are happy with, and what they would like to change. If you increase your price or any other variable, be sure to make a move in smaller and smaller amounts. So if you start by agreeing to go up by £10, only increase by £5 the next time and then perhaps £2. You are letting them know that they are near your price ‘ceiling’.

QUICK TIP: If they push you to answer, don’t be afraid to walk away to think about their offer. Silence or a gap in discussions can be a very strong tactic as they may reconsider and offer you something better. Power Be aware of who holds the more powerful position. Is it the buyer or the seller?

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7. take action 4: Negotiate

If you need to boost your status, being persuasive is important. Give logical arguments for your offers. Hopefully the information for this was gathered when you did your research. Make sure that you are confident in your company, and you really believe in your service and the price you can pay, so you always have something to offer. If they push you on price with a ‘take it or leave it’ type attitude, you can still offer less it you match it with a justification of why you would be a good company to work with.

QUICK TIP: Look through all the research you have done and notes you have made in phone calls. Summarise the main points for yourself and print this out to be your ‘crib sheet’. Write everything down, and summarise regularly because: •

It’s easy to forget things!

•

It’s easy for people to misunderstand you.

•

It’s easy for everyone to hear only the bits they want to hear.

Keep going When you have discussed for a while, recap and confirm where you are, what you have agreed to and what you still need to agree on. You should keep moving (or shuffling) along until you both get to a point you are happy with. This isn’t always a pleasant experience, which is why relationships and an understanding of the other side’s position and motivation is so important. You also need to help them understand your perspective and do all they can to help you. Review what has been said, before moving on to another point. After each conversation, recap in writing. At the start of another conversation, recap where you got to last time so you both have the same picture of the deal.

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People hear what they want to hear, and interpret your words as they want to understand them, so you must recap in writing every point you agree to. If things are going slow, arrange a meeting as you can often find out what the hold up is if you meet up with someone. You can also get a deal done quickly.

Problems getting to an agreement A blanket ‘no’ is highly unlikely. To keep your resolve strong, make sure you have another company ready to contact if you don’t get the result you want from the first one. If you come to a ‘deadlock’ where no side is prepared to give anything away, it is time to offer something that you have decided is not essential for you, in return for something from them.

QUICK TIP: Try to speak in the other party’s language to get them to understand your position. By this, I mean try to use the same terminology as them (though make sure you are using it properly). Companies and industries tend to have their own jargon. Adapt to this. How you present your deal and discuss the terms is very important. You can let them know that you have more to spend, or where your flexibility is, simply by the language you use. Take a look at the chapter on language to give you some pointers on this. Every deal is different, and everyone’s expectations are different. Take your time, think things through. The main thing is to stick to your guns and work within the range you have set for yourself.

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8. take action 5: agree a Deal IT FEELS GREAT to agree a deal if you have been going round the houses to find the right terms. It is definitely worth celebrating with lunch or a drink. You never know, they may invite you! A few things to remember at this stage of your negotiations: •

Don’t try to add or change anything at the last minute. There is nothing worse than shaking hands with someone as they are adding something in to the deal.

•

Get everything written down and signed.

•

Capture all the points of the deal, even the smallest details.

There are many tactics sales people use to get you to sign a deal (see the chapter later in the book). If you have done your research and have clear boundaries that you need your deal to fall within, don’t be pressured to agree to anything else. If you are asked to sign a deal that you are not happy with, say clearly that it is not a deal you would like to sign, and you would like to see what else they can do to improve it for you. Always say you will go away and summarise what you have discussed so you have some breathing time. Always write everything down and review it yourself before signing anything. Make sure everything you have discussed is in a final agreement and don’t be shy about going back and double-checking things.

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The last thing you want is to have any doubts about your deal. Give yourself time. If you did your research well, and worked within your ‘ranges’, you will have a good deal. Feel confident and be proud of yourself! Remember that you have so much to gain by doing this. Apart from confidence and money there may be many other outcomes:marketing opportunities •

customers passed on from your suppliers

•

more time to deliver or pay.

As you get practised at this you will feel more confident and begin to enjoy the whole process more.

Deal Memos I recommend that you draw up a deal memo to confirm everything. Below is an example of a memo format:

Deal memo: Sale of icing Sugar Sales Company: Sweet Sugar Company Buying Company: Lucy’s Lovely Cakes Date: 20 April 2013 Volume: 200 kilos Price: Price per kilo: £1 Total price: £200 Delivery arrangements: Delivery costs: £25 Payment for delivery: covered by Lucy’s cakes, will be added to first payment Date of first delivery: 1 May 2013 Date of second delivery: 1 October 2013 43

8. take action 5: agree a Deal

Payment terms: 50% on signature of deal memo 25% on delivery of batch 1 25% on delivery of batch 2 Additional Information: Advertising Sweet Sugar Company to include colour A5 advertisement for Lucy’s cakes in six monthly newsletters, sent to customer base of 250 bakers and restaurants via internet and direct mail. There will be no fee for the placement of this advertisement. Lucy will supply all artwork to required spec. Cake baking Lucy to bake celebration cake decorated with company logo for Sweet Sugar Company’s 25th birthday celebration (for 50 people) at no charge. Delivery for this will be covered by Sweet Sugar company (£25). Agreement: Signed: …………………………………………………………. Lucy’s Lovely Cakes Signed ……………………………………………………………… Sweet Sugar Company

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Contracts In some cases you will need to draw up a contract with your supplier, or they will draw up a contract to send to you.

Find a lawyer It is always useful to identify a solicitor who can work on your behalf, even if just to read through contracts that you may receive or which you draw up. The Law Society has advice on how to go about finding a suitable solicitor. As I write this there is a scheme running where you can get a free 30minute consultation for your business from a solicitor. This is called the ‘Lawyers For Your Business’ scheme. They also suggest looking for solicitors who are used to working in your area of business. To find out about this, go to the Trade Association Forum website. www.lawsociety.org.uk/find-a-solicitor www.taforum.org

Drawing up a contract yourself If you feel confident enough to draw up a contract yourself, the best idea is to start with an existing standard contract and amend it accordingly. This may be one that you have received in the past, or a standard contract you can buy ‘off the shelf ’. Make sure you pay attention to all the wording in the contract to ensure it is relevant and relates to exactly what you are intending.

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•

Start with who the buyer and sellers are, put the names of the companies, and their capacity in this deal (buyer/seller/service provider etc.)

•

Then define the goods or services to be provided, the cost and timelines for delivery of the services.

•

Include timelines and method for payments.

8. take action 5: agree a Deal

•

Include as many details as possible so there is little room for argument or misinterpretation.

•

Make copies to be signed by yourself and your client, so you have one original copy each.

If you are sent a contract by your client, make sure you read it carefully. If you do not understand any clauses, find a lawyer to read it for you. For more information see Contracts for your Business by Charles Boundy: harriman-house.com/contractsforyourbusiness

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9. Communication tips IN ORDER TO get the best out of people, and in turn get the best result for yourself, it is worth thinking carefully about how to communicate with them. By this I mean whether to carry out negotiations by phone, email or in person. And, when you have decided on this, how often to contact people; and whether to be chatty and sociable, or business-like and direct. Different personality types react differently to different approaches. It is important to get the best out of people (and yourself) whether you are the buyer or the seller. I prefer responding to people and deals by email. I think this is because I am not a particularly outgoing person, and I like to have time to think things through and to work out all the different scenarios. Other people that I have worked with prefer to deal on the telephone or in person so they have an instant reply, and can ‘see the whites of people’s eyes’ so to speak. Of course, they don’t always get the reply they want with this way of working, and if they are communicating with someone who prefers emails, they might not get a response at all! Just be aware of other people’s preferences, in so far as its possible to detect them. There’s no harm in asking them what works best from their point of view. Personality typing is an interesting way to work out how to try and get the best from people. It can also help with understanding yourself and how you work best, so you feel comfortable and confident. The Myers-Briggs Type Indicator is one tool that you can use as a way of evaluating the people you work with. There are a few sites where you can try some short tests yourself: 48

How to Negotiate

www.humanmetrics.com www.teamtechnology.co.uk/mmdi/questionnaire www.businessballs.com/tests.htm www.personalitypathways.com/type_inventory.html Consider how each person prefers to communicate. How would they resolve conflict? How do they see problems (glass half empty or half full)? Do they like to get into details? How could you get them to understand your message more clearly? At a very basic level the Myers-Briggs test deals with: •

Do you like to be involved with people and talk through your thoughts and ideas, or do you prefer to reflect on things and think them through before acting?

•

Are you a logical person or do you prefer to go with your feelings?

•

Do you look at far-reaching long-term possibilities, or live more in the present day, working on improving current skills?

•

Do you let life flow over you and accept it, or like to be in control by setting goals?

It is useful to test yourself so you understand how you work best. Then have a go at identifying aspects of other people so you can communicate effectively with them. This may come down to whether people prefer to talk on the phone or see numbers on an email.

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•

Do you present detail (in a spreadsheet for example), or send a general overview to get an initial agreement and then go into detail after the ‘bones’ have been drawn up?

•

Keep in touch through inviting people for drinks, or send sporadic written updates with offers in, which may appeal to them more.

•

Consider relevant issues that may appeal to the other party. Is this person concerned with larger global issues (the environment), or are they concerned with the opportunities for their own company?

9. Communication tips

QUICK TIP: Remember, the more you can connect with people, the easier it will be to get good and lasting deals done. Personalities can play a big role in negotiation. It is important to be yourself and to feel confident. As I have mentioned, you will feel more self-confident when you have increased your knowledge (so you know what you are talking about), and when you are following a set of steps. Be aware that some sales people may seem pushy or even aggressive at times, and they may try to pressurise you into making a decision. This can be quite off-putting, so stand your ground. Be relaxed and friendly, but firm when you are talking about numbers. If you know there is no future relationship there, don’t waste any time. Close the conversation politely but firmly.

trust To build a trusting relationship normally takes time. It is the best relationship to have, and the deals done in good relationships are normally quick and beneficial to both parties. Dedicate time on all fruitful relationships to move them into this top tier.

QUICK TIP: A number of trusting, mutually beneficial relationships is a very valuable asset. If you have clients or suppliers in the market that you can rely on you will be far better placed than a company who doesn’t have this. In order to create these relationships you need to build an honest and genuine relationship.

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10

.

Sales techniques and How to React to them THERE ARE MANY techniques and tactics used by sales people that you need to be aware of so you can decide how to tackle them. If possible it is a good idea to go on a sales course or two, so you can see how standard training works. Obviously methods depend on the size and culture of the company that you are dealing with, but some are more aggressive with their selling strategy than others!

Complexity Some sales people may blind you with the complexity of a deal. When there are lots of variables involved, do be careful with this. The normal strategy in this situation is to make the price sound good, and fleece you in another area that you may not notice. I recommend that you take time to write down all the details involved to make sure that you are getting a good deal. Try to simplify things where possible so it is clear what you have ‘on the table’

Deal ‘creeping’ Remember Columbo? If you’ve seen the series, you won’t forget how the eponymous detective always catches his crooks by adding ‘one more thing’ at the end of his questioning. This is the negotiating equivalent, where a sales person (or buyer) may shake your hand and add one more thing in after you thought you had closed the deal.

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If this happens, feel confident in yourself to say “We haven’t discussed this: if you would like to go back to the negotiation stage I would be happy to”. Just don’t shake on their addition without another word. Make sure you don’t give away something for nothing. There can equally be deal ‘creeping’ after the deal is closed and summarised. Additional things that may have been forgotten about are brought up and slipped in. This can also happen when a contract is written up. Don’t accept these additions. Either refuse them or go back to the negotiation stage and get something in return.

time Time often plays an important role in negotiations in several ways: •

If a product is urgent for a buyer they may end up paying more for it to get a quick deal; and if the sales person needs to close a deal quickly they may sell at a lower price.

•

A delay in getting back to someone (on either side of a negotiation) may lead to the other party getting nervous, and increasing or lowering their offer. If you are buying and have time on your side, it is often a good tactic to use. The sales person may think they have lost a sale and will be more open to lowering their prices when you go back to them.

If you are told that you only have a certain time to buy a product at a special price, be wary of this. Creating a sense of ‘urgency’ is a sales tool used by many to ‘panic’ buyers into purchasing. These offers often come up again, or you may be able to extend the offer. Make time for yourself so you can use time to your advantage. Think ahead when ordering and negotiating. If you don’t have much time to get a deal concluded there is a danger of not getting the best result. Try to buy yourself time to make sure this doesn’t happen. Wherever possible, delay delivery dates, or alternatively buy a small quantity to tide you over while you are discussing a larger deal.

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10. Sales techniques and How to React to them

Remember that after a deal is signed the circumstances are often forgotten and just the contract remains. The contract you have agreed to will be used as a blueprint for future dealings.

on the spot Don’t be forced into signing something on the spot. There is a sales technique where the sales person may sum up the situation by reading through an agreement and ask you to sign your acceptance. Don’t be pressurised. Say you would like to take the agreement away with you and read it through before signing anything.

Pass the responsibility Another tactic for sales people is to say everything is subject to management approval (which it may well be). However, this does give licence for them to come back and change things at a later date. It can be a good one for you to use if you are not totally comfortable. You can always say you have a business partner who needs to look at everything with you before signing.

aggression If people are aggressive in conversations (which has happened to me), there are a various ways you can deal with this •

walk away and let them know that you will resume the conversation at a later date

•

walk away and ask to speak to one of their colleagues

•

shouting back doesn’t help the situation and will often lead to problems getting to an agreement

•

when you look back, it is worth thinking about why it was so important to the other person and what made them behave in that way. It may give you an insight into negotiating with that sort of party in the future.

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Scarcity Saying something is a limited edition, or only on offer for a short time, is a very well-known tactic to encourage sales. Be sure that the products or services really are only available for a short time, and find out why. Will they be offering a better product to replace it?

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11. Meetings DO YOU ENJOY going to meetings, or do they worry you? I have been working in a company where I may have half an hour of the day that is not spent in a meeting, so I’ve done my fair share! Below are some guidelines: firstly, for attending meetings in general; and then for attending meetings when you are discussing a particular deal.

general tips for attending Meetings Make sure you have set the location of the meeting as exactly as possible. Always get directions before you go and check the time, the day and date. Phone and confirm the day before just to make sure you haven’t written down the date incorrectly. In the past I have found myself arriving on the wrong day and at the wrong location entirely. It is very easy to do, particularly if the company has more than one building! Don’t be afraid to ask who will be attending and what the people’s roles are so you can be properly prepared and bring the right number of samples or handouts. Give some thought to who will be attending and what they might be interested in hearing about your company.

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a first meeting It is always a good idea to have an agenda for a meeting, even if it is not very detailed. If you are meeting a company for the first time, you could just send a quick paragraph summarising why you would like to meet: “I am looking forward to coming to see you on Tuesday 8th January. I would like to give you a presentation about our company and look forward to learning more about Sugar World. I look forward to finding some ways we can work together.” what you should take to the meeting •

Your business card.

•

Any promotional material you have. You can hand it over if you think it’s appropriate.

•

A notebook.

•

A presentation on a USB stick or a laptop (if you have this).

•

Directions of how to get there, and the names of who you are meeting.

in the meeting Give an overview of your company. Have a good couple of sentences ready prepared so you sound confident. Say how long you have been in business, where you are located and how business is going at the moment. If you have a short presentation and visuals, this may help to show more about your company. Always ask first before you launch into a presentation – you don’t want to take up too much time on this. They should then give you a similar overview of their company. Ask questions, be interested. The more you can find out the better it is for you. 57

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Be passionate about your business. Don’t be embarrassed about it.

QUICK TIP: Try to find out about the company culture. You can get a feeling of this if you are at their office for the meeting. You can normally tell how easy or difficult they will be to work with.

Follow up After the meeting you will have gathered business cards and possibly company literature. Send an email to thank them for their time and to summarise what you decided. If you are going to have another meeting, suggest a time. Keep the momentum up, or it may be weeks before you see them again.

Meetings when You are Discussing a Deal If you have sent a proposal by email first, make sure to take your email with you plus any correspondence you have had with them. A couple of things to remember: •

They want to do a deal with you, or you wouldn’t be having the meeting at all.

•

You will always find a solution if you can make both of you happy.

With the agenda, before the meeting send in a recap of the points you would like to address, for example: “I am looking forward to seeing you on Monday 6th July. I hope you have received my proposal. I would love to go through this with you and get your feedback. If you have any questions in ad58

How to Negotiate

vance of the meeting please do let me know.” Try to anticipate any questions they will have and bring along your back-up materials. Remember to take the following •

Research checklist.

•

Information about the company.

•

Your best deal and acceptable terms.

•

Any emails or previous correspondence with the company.

Before you go in to the meeting, be clear what you want to achieve. Do you want to close a deal then and there? Do you want to find out more about their business? Do you want to get their feedback so you can move on to the next stage of the discussion?

QUICK TIP: Write a list of the things you want to say before you go, and check this list before you leave.

the most important thing to remember The most important thing is to listen to what they are saying. When you have items to get through, and something not so easy to say, it is all too easy not to listen. Remind yourself regularly that you need to listen and understand what they are saying to you. So much time can be saved if you do this. I hope my previous colleagues don’t take this personally, but in my experience sales people are not very good at listening. They are very keen to tell everyone about their shiny new products, and go through their practised sales pitch. If you spend time listening carefully to the needs of the other person, and ask questions at the right time, you 59

11. Meetings

can find out how to get to a deal done. •

Listen

•

Observe

•

Ask Questions

It isn’t always easy to do all these things when you are on your own, but take your time. You don’t have to get everything out within the first five minutes of getting in the room! In order to slow yourself down, it is a good idea to start the meeting with some pleasantries, the weather, holidays, kids, that kind of thing. Then talk about your company and give them an update of where you are. This should include any news of new business or projects coming up and how happy you are with how it’s all going. They may well start off with this also. You will probably then get to the details of the offer and can work through all the points. It isn’t easy to talk, listen and take notes all at the same time. I would recommend attending a meeting with a colleague if possible, but as we know that isn’t always an option.

Meetings with more than one person It is very important to set roles, and decide who is going to say what before you go into the meeting. Look at the agenda, or write a list of the points you would like to go through in the meeting and decide who is more comfortable discussing each area. When there is more than one of you it is an excellent opportunity to split up the roles into: •

watching

•

listening

•

talking.

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Listening Effective listening means picking up on what the other company are saying and making notes of everything. By noticing the language they use you may be able to tell where there is room for movement and where they really can’t make any changes. watching Watch how they interact with each other, notice when they smile or look worried, or when they make signals to each other. talking Discuss with your colleague(s) briefly what you are going to cover first, and who is going to cover what. When the person doing the talking doesn’t have to worry about listening to everything, they can concentrate on getting your message across clearly. Don’t be worried about calling ‘time out’ in the meeting and asking for a few minutes to discuss with your colleague(s). Just say that, if they don’t mind, you would like a few minutes with your colleague(s) as you have a quick point to discuss, and leave the room. Everyone likes a breather when meetings have been going on for a while! You need to share your findings together.

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12. what to wear and Body Language what to wear THE TYPE OF clothes you decide to wear will have a strong impact on how you will be perceived. Do you want to come across as business-like, glamorous, creative, a go-getter, or a mum who runs a business when she has time (this is exactly what I tend to look like if I don’t make an effort – it can be a bit embarrassing!).

How do you want to come across? If you think about how you want to come across, you can make a positive impression before you even open your mouth. Consider what you want to achieve. Ultimately this should be to create a longlasting relationship and get good deals. So dress accordingly. When looking in your wardrobe before going to a meeting, my advice is to be an enhanced version of yourself, and wear what you feel confident in. Bear in mind that you want to give an honest and straightforward impression of yourself (when you are at your most organised!).

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where are you going? Think about the type of company you are going to. If you think you might feel a bit underdressed (if you are in a meeting with people wearing suits, for example) then consider this before you go. You don’t have to wear a suit but you can always smarten up with a scarf or nice jacket. On the other side of the coin, if you are going to meet people who will be in a very casual setting, you don’t want to feel like you’ve overdone it. •

Consider what impression you want to give.

•

Think about what sort of company you are going to.

•

Consider where the meeting is being held.

•

Make sure you feel comfortable, and feel like you.

QUICK TIP: Don’t show too much flesh, even in the summer. In my experience it is always noticed when people wear revealing tops or short skirts – by both men and women. And the reaction is always negative.

Body Language There is so much written about body language, but I will share a few tips I have been taught and observed, and have found useful. Shake hands with people when you first meet them. If there is any hesitating, don’t be afraid to put your hand out and be confident to introduce yourself. It makes people feel at ease and it makes you feel in control.

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12. what to wear and Body Language

Remember some simple things: •

keep good eye contact

•

don’t have your arms folded

•

stand up to greet people if they come into the room

•

look at people when they are talking to you

•

nod to show you understand (but see below)

•

don’t fidget while someone is talking

•

sit up straight or lean in towards people a little

•

use your hands a little to illustrate a point, but not too much.

The main one for this day and age is don’t look at your phone during a meeting. Switch it off before you go in. I have been on various courses where I was videoed. This was not very pleasant, but it was very interesting. If you don’t have a verbal ‘tic’, you may have a physical one. I tend to brush my hair away from my face when I get a bit nervous, so in an uncomfortable situation this is fairly constant. Ask people if there is anything you do that you might not be aware of – do you clear your throat a lot or click a biro? Be aware of what and when you write things down. It’s difficult if you are on your own in a meeting to take notes, but be aware that the people you are meeting are watching what you write down and when you do it, so if you only write a couple of points down during the meeting, you will give them the message that these are the most important points you want to remember. I would recommend making short notes often. It helps you remember all the points. Making notes also slows down the proceedings and gives you time to think. Look out for the following behaviours: •

nodding in agreement (when they weren’t before)

•

getting keener and more animated about the conversation

•

talking faster

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•

picking up a calculator or pen and working things out.

•

watch what they write down (as above!)

These can all be good signs showing a deal is nearly closed! Equally watch out for yourself doing these things. Don’t betray your thinking to them.

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13. Keep those Relationships going A GOOD REASON for keeping business relationships going is that, if you get some good research under your belt, you will not want to go back and do a similar exercise every time you need to make a new order of something! So be active in keeping in touch with your suppliers (as you would with your customers). If you have found a good supplier, you want them to keep doing business with you. Ways to keep in touch with your suppliers and customers: • •

• • • • • • •

send Christmas cards or even gifts to the most important ones go and see them – nothing beats face-to face meetings in these days of emails; if you take the time to go and visit people they will remember you and the effort you made keep all your communication so you don’t have to go back over old ground ask clients or suppliers for feedback – there is always room for improvement take them for a drink send information and updates about you/your company give them special offers referral marketing pick up the phone every now and then and give them an update of where you are; this is worth so much. 66

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trust The best relationships are based on trust. You have to get to know someone quite well to earn their trust. It takes time and effort. And with some people you can never get to this point. Work on your rapport with your suppliers and clients, take time to listen to them, try to understand more about their values and beliefs so you can build a rapport with them. Your goal is to be someone they will go to straight away when they need something, or to be someone they could ask a favour of. Both sides should be able to get good deals out of these relationships.

Contact Keep a chart of when agreements run out, or when you expect to start conversations about a new deal. When the time is approaching to contact your supplier again, give them some notice; give them a quick call to say you would like to renew your deal again and let them know when you’ll be in touch with more details. By giving some notice: •

they will have stock prepared for you

•

they are more likely to look favourably on you and give the same rates as last time

•

they know you are reliable and they can count on repeat custom from you.

Social media Connect with people on Facebook and LinkedIn. It is a good way to get to know people better. It all comes back to building trust with your circle of suppliers, and getting to know them personally. For example, if you know that one of your suppliers is a keen mountain climber and has two small children, you may find you have 67

13. Keep those Relationships going

things in common, or at least understand their ‘motivators’ better (family life and outdoor pursuits). If you do use social media for your business promotion (a must these days), be aware of how much of your own personal life you are sharing with your business clients and suppliers. It is important to be yourself and let people get to know you, but equally having your friends tell stories about your nights out may not be so great! You could keep Facebook for personal use only, and use Twitter and LinkedIn for your business. Alternatively, you could have pages for your business only. It is very rewarding when you get to know your clients and suppliers well.

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14. Your Profit Margin and Cash Flow HAVING A GOOD grip on your finances is really important in deciding both how much you can pay for a product and on which areas of your deal you are going to try harder. A first step is to understand your profit. Here is a good explanation from Emily Coltman, chief accountant at FreeAgent: “For a service-based business, profit margin is a key metric. A business’s profit is its income less all its day-to-day running costs, such as the cost of travelling to visit clients, or buying a new power pack for your computer. The profit margin is the profit divided by the sales and is usually shown as a percentage, for example a business with £100,000 worth of sales in a year and £75,000 worth of running costs has a profit margin of 25%. This means that for every pound of sales that business makes, it earns 25p of profit. Your business’s profit margin may be higher or lower than you think so it’s worth comparing it to last year’s profit margin, to your planned profit margin and to the profit margin of other competing businesses.” Do you have a fixed profit margin that you work to after you have worked out all your overheads and expenses? It is a good idea to know this figure so you know exactly when you have struck the right deal for you. When considering all the ‘moving parts’ of your business you need to keep track of how much you can spend on one product. It lets you know how much you have for another.

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When working out your profit margin, consider the following factors: •

raw materials

•

your time

•

overheads (lighting, heating, office expenses)

•

marketing costs

•

delivery costs.

When you have considered all these factors you can work out how much profit you’re able to make (your gross profit margin).

For each of the ‘nuts and bolts’ that go into making your business, you can work with the deals you have in place, and see how you can improve them, and in what ways. Set yourself targets of how to improve all the ‘variables’ in your deals. ‘Play’ with your numbers. See if you increase or decrease the price of a single raw material how much it will affect your profit margin. Take a look at increasing the volumes of everything. Span this over different periods of time.

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14. Your Profit Margin and Cash Flow

example If you have an online hosting business, your costs may be: •

servers

•

your computer

•

software

•

your ongoing training

•

IT support services

•

your gross salary

•

electricity

•

lighting

•

heating

•

phone bills

•

insurance

•

rent.

When all this is put into a spreadsheet, you may work out that the total cost of running your business comes to £15k plus your salary of £21k – i.e. £36k per year. In order to cover your costs you need to earn this amount. When you start to factor in the regular deals you have in place: •

100 x individual hosting clients who pay you on average £100 per client = £10k

•

10 x companies who pay you £2,000 per year on average for hosting = £20k

•

3 x companies who pay you £5,000 for consulting and hosting = £15k

•

You have a total income of £45k and expenses of £36k.

•

9k is 20% of 45k (gross revenue), so your profit margin is 20%

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In order to keep a 20% profit margin annually, look at all your costs. Work out which ones you can lower in order to have flexibility. If you are negotiating for IT support services, see if you can get a better deal on software or hardware expenses in the coming year. All these different elements will come in to play.

Cash flow Do you have enough cash to be able to pay quickly and get a better price or would it be better for you to pay a little more and have delivery and payments staggered over a longer period of time? Work out your cash flow: •

Make a spreadsheet with all your outgoings and income. Then put all these in order of when the money will come in or go out of your account.

•

It is very important that you put them in the right order and estimate the dates as not when you make a sale, or when you buy a product, but when the actual money goes in or out.

This way you can make an accurate estimate of what your bank balance will look like in the next few months. Be honest with yourself and then you can work out how to manage any potential problems which may arise. Include everything from bank fees to electricity bills. Anticipate who may pay you late. Check the terms on your invoice, and the terms on all the invoices you receive. Do you pay before the terms (normally 30 or 60 days)? What are your terms, and are you paid on time by all your suppliers? In this way you can see how you may benefit by either paying for products all at once, or by having staggered payment dates.

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14. Your Profit Margin and Cash Flow

I was recently on a finance course where we were looking at the finances of a company that was having difficulties. Although they were profitable, they had not taken their cash flow into consideration carefully enough. The company had recently bought an expensive piece of machinery. A large amount of cash was used to pay for this, so their bank balance took a large hit. They were not able to pay their bills as their suppliers were not paying them on time. If they had rented the same machinery they would not have been in the same position. They could have had the same equipment, but spread the cost over a long period of time. Remember them an keep a careful eye on your cash flow, considering all options open to you. If you would like help with understanding you finances, take a look at Finance for Small Business by Emily Coltman (www.harrimanhouse.com/financeforsmallbusiness).

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15. the Language of Negotiating HAVING A GOOD dialogue and communicating well with your client or supplier is important in many ways. You can:learn more about their company •

learn more about them

•

find out what their essential (and non-essential) variables are

•

find out about the market

•

learn about your competition

•

learn about how you are perceived in the market, and find ways you can improve and grow your company.

In order to get all this valuable information, you need to be aware of your clients or suppliers as people, and how you speak to them. Try to engage with the person. When asking questions, make sure they are ‘open’. This will avoid you getting yes or no answers. open questions •

Tell me a bit about your business?

•

How is the market at the moment?

•

What marketing plans do you have in place for this year? 76

How to Negotiate

•

What is your strategy for working with start-ups/local businesses?

•

Do you have any new products in the pipeline?

Negotiating questions •

In return for this would you . . .

•

If I did that for you would you consider . . .

•

What do we need to do to make this work?

•

How can we move forward from here?

to make a proposal •

We have worked hard to find a solution that will work for both of us.

•

Please find below our counter-proposal.

•

As you know, we have a very good relationship and we feel confident that we can find an acceptable solution.

•

If we were to accept xxx would you be able to yyy.

to reject a proposal

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•

We cannot accept your proposal as it is, so we have worked on a solution which we hope will be acceptable . . .

•

We have moved a long way to meet you on this already, and would appreciate if you could agree on this point.

•

We understand your position, however we are not able to accept some of the points.

•

We are in a difficult situation regarding xxx and would appreciate if you could help us on this point if we do yyy.

15. the Language of Negotiating

•

Unfortunately we can’t accept this offer because xxx. If we could have a chat about this perhaps we can find another way to reach an agreement?

•

We would like to suggest . . .

to delay •

I will need to go through my numbers and can get back to you shortly.

•

I need to discuss with my colleagues and will get back to you.

•

I can’t agree at the moment, but will get back to you.

•

I will work on a counter-proposal that will hopefully be acceptable to you.

•

I think we have nearly come to an agreement, let me just work on it a little more and get back to you.

words Spend some time listening to the type of words people use when they are talking. •

When you are feeling positive and upbeat you will use inspiring, expansive words.

•

When you are feeling worried or under stress you will use words that may be shorter, sharper and you may come across as a bit aggressive.

A good practice is to try and keep your language and emotions in check when you are discussing a deal, so you come across professionally, and don’t give too much away. Try not to use closed words as it is difficult to go back on yourself if you change your mind:

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•

never

•

always

•

impossible

•

definitely.

Be aware of words that you use that may be ‘floppy’ and too open to interpretation: •

how about £xxx

•

I could offer you around.

Instead, make clear statements: •

I can offer you £400

•

We can accept delivery after 14 days.

writing an email Emails can easily be misinterpreted, so it is definitely worth spending some time to write them carefully. Leave them for a few hours and then re-read them before you send out. When you are writing a business email, always make sure to address the person by name, and sign off with a ‘kind regards’ or something similar. Try to be friendly, include some pleasantries (weather or holiday-related), so they know you are meaning to be polite, and then get to the point of the correspondence. If you have an attachment, always mention in your email that there is an attachment, so they know it’s there, and always mention the subject of your attachment in the body of your email. If you are writing as part of your negotiation, follow these guidelines:

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•

start with something positive

•

if you are rejecting a proposal, explain why you are rejecting it

•

suggest a solution to the problem.

15. the Language of Negotiating

QUICK TIP: If you are writing an email from your phone, think about how it will look or sound on a computer screen. Often sentences written in haste seem a bit curt.

example Dear John, I hope you had a good holiday with your family, I’m glad the weather was kind to you. I had a very enjoyable weekend with the family; the picnic went very well despite the rain! Many thanks for your proposal. I have gone through all the numbers carefully and have been working hard to find a solution that we can both feel happy with. As a quick recap, you have suggested £7 per kilo for a total of 100 kilos (total of £700) with payment prior to delivery. In our telephone conversation we discussed splitting payment terms, but you mentioned that the value of £700 was important to you. I can therefore suggest the following: We can take 120 kilos in two batches over the next six months at a price of £6 per kilo (total value of the deal £720). If acceptable to you, we will be able to make three payments for this, starting with £200 on delivery of the first batch, one interim payment, and the final £200 on delivery of the second batch. As you know, payments and storage are both currently a concern to our company. I trust the above will be acceptable for both of us, and look forward to hearing your thoughts. With kind regards, Chloe 80

16. Steps to Successful Negotiation FOLLOW THESE STEPS to successful negotiation: 1.

Do your research.

2.

Decide what the variables are.

3.

Work out what deal you would like (i.e. your best and minimum deal ‘range’).

4.

Make a proposal.

5.

Get feedback.

6.

Discuss.

7.

Work towards a deal you are both happy with.

8.

Agree.

9.

Write it all down.

10. Keep in touch.

Rules to remember •

Prepare well – do your research and work out your ‘ranges’.

•

Listen.

•

Ask questions.

•

Never accept the first offer.

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•

When you offer something, always get something in return.

•

Be brave, bold and friendly.

•

Build relationships.

17. Useful Links and worksheets general business advice www.aceinspire.com www.startups.co.uk www.enterprisenation.com www.gov.uk www.wireuk.org www.startupdonut.co.uk www.startupbritain.co.uk trade fairs www.biztradeshows.com/unitedkingdom expopromoter.com/events/search/GB www.exhibitions.co.uk

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Finance www.bbc.co.uk/schools/gcsebitesize/business www.princes-trust.org.uk/need_help/enterprise_programme.aspx At my site you will find resources to help you further with your negotiation skills: www.negotiationcafe.com.

worksheets Research Date:................................................................................................... Phone call with:................................................................................. Company:........................................................................................... Phone number:................................................................................... Purpose of call:.................................................................................. What I know about their company:................................................... My company introduction:................................................................ Questions to ask:................................................................................ Don’t forget to ask:............................................................................ Information found out:....................................................................... Meetings Date:................................................................................................... Attendees:.......................................................................................... Company address and how to get there:............................................ Phone number:................................................................................... 85

17. Useful Links and worksheets

Purpose of meeting: Questions to ask at the meeting: 1......................................................................................................... 2......................................................................................................... 3......................................................................................................... 4.........................................................................................................

Don’t forget : •

Recap of discussions so far

•

Information about me and my company

•

Business card or contact details

Discussion: They would like to sell a larger number of products and can accept a lower price. They can be flexible with payments Follow up: Send revised proposal next week

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