Once you’ve made that big sale and your dream big-business customer has finally said, “yes” your work is likely just beginning. Now, you need to negotiate and sign a contract to truly close the deal. The art (and/or science) of contract negotiation is as old as business itself, as evidenced by this 1935 Marx Brother’s clip which is still as funny and relevant as ever:
Of course getting favorable contract terms is no laughing matter for small business owners. A solid contract can mean the difference between a profitable business relationship and a costly legal nightmare.
The best defense is a good offence—which is why it is a good idea to have a set of your own contracts ready to employ as soon as the sale is made. This way, you can start negotiations with your terms instead of with your customer’s, likely less favorable, terms. How to Write a Business Contract on the FindLaw website is a great primer. Additionally, the FindLaw small business site provides many helpful free contract templates that can help you jump-start the process. (Don’t forget to have anything you create reviewed by a lawyer.)
If you are selling to an individual or to another small business, your contract terms will likely be accepted as is, or as the basis for beginning negotiation. When dealing with a large company or the government your position will often be significantly weaker.
Government contracting is a double-edged sword for small businesses. On the one hand, US government agencies are encouraged to use small business suppliers, and even have goals for the number of small businesses they must utilize. Budgets are often large, and once you establish a solid relationship with a government agency you can typically look forward to a steady long-term business stream. On the other hand, as a small business owner you typically have little-to-no ability to negotiate contracts and terms—it’s the government’s way or no sale. This can mean agreeing to long receivables periods, allowing the government to make unilateral contract changes with little notice, and other onerous provisions. If you are interested in pursuing US government contracts, the Small Business Administration provides all the resources you need to register your business, get listed in the appropriate supplier directories, and work with government agencies. A good place to start is the Government Contracting Classroom which provides a number of courses you can take, including the three-part Government Contracting 101 course.
There is a bit more room for negotiating with large companies than with the government, but as a recent NY Times post notes, it can feel like a David and Goliath battle. Big companies will often toss their boiler-plate contracts at you, and expect you to sign. These contracts can often contain clauses that you regard as deal-breakers, and put you in the difficult position of having to go up against large teams of corporate lawyers, agree to terms that may cause big problems later, or walk away from a potentially profitable sale.
When faced with these situations, a NJ Business Magazine post suggests that you give the big company what they want—but make them pay for it. For example, if the big company wants 90 days to pay, offer them 30 days for free and charge an extra 5% for payment received between 31 and 90 days of the due date. How to Negotiate Contracts with Big Companies, offers another piece of good advice—stay in touch with the people at the big company who selected your company. They are likely not the people with whom you are negotiating the contract, and if the deal falls through they will look bad, so they are probably helping you behind the scenes.
If you do end up in drawn-out negotiations with a big company, you will probably end up with multiple drafts of a contract. Keeping track of all the drafts, all the changes, and the most recent version can be confusing and complicated. Five Tips for Keeping Track of Contract Versions from theContractsGuy blog provides helpful advice—particularly if you’re trying to handle the entire negotiation yourself.
It is always a good idea to have your lawyer look over any final contract before signing it. And, there may also come a point in negotiations when they are too complicated, or simply too heated, for you to continue representing your business yourself. That’s the time to call your lawyer to take over. When you do, make sure that the lawyer knows exactly what you want to get out of the deal, where you can compromise, and most importantly, where you can’t.
Working with a lawyer can be rewarding and complicated. We’ll tackle that one in a future post. For now, read 3 SIGNS YOU NEED TO FIRE YOUR ATTORNEY from the NFIB blog. The post provides tips on how to demand great service from your lawyer and get it.
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