Contract Negotiation Tips for Small Business Owners

For many small business owners, contract negotiation can feel like a daunting task. However, contracts are vital to the survival and growth of a business. Whether it’s a contract with a client, a business partner, a shareholder, or any other party, a contract is needed to outline the terms, rights, and responsibilities of an ongoing relationship. In this post, I will give you some tips on how to negotiate the most mutually beneficial terms.

Tip #1: Plan Ahead

The first step to negotiating the best contract starts before you even begin the negotiation process. Before the negotiation, take time to carefully plan how you think the process will go. Define your objectives; what do you want to get out of the agreement? Are there some expectations that you believe must be met in order to move forward with the partnership, and are there others that you are willing to negotiate? Think about what objectives the other party may have and identify any possible disputes that may arise. What are some ways in which you believe those disputes can be resolved? Look for any common ground that could be useful in resolving these disputes.

Tip #2: Understand Your BATNA

Best Alternative to a Negotiated Agreement (BATNA) is your best alternative if a deal fails. It is the standard that you should measure any proposed agreement against. If the proposed deal on the table is better than your BATNA, then you should accept it; if it’s worse, then you should reject it and go with your alternative. It also gives you negotiating leverage. Having a BATNA demonstrates to the other party that you will not accept unfavourable terms because you have a viable alternative.

Consider the strategic timing of revealing your BATNA to the other party. While revealing it too early can be perceived as a threat and may damage the collaborative negotiation process, it can serve as a bargaining tool if negotiations reach an impasse. When each party has a BATNA, then a ZOPA (Zone of Possible Agreement) can be reached. ZOPA is the range where each party’s BATNA overlaps, representing the area where an agreement can be reached. 

Tip #3: Effective Communication

It isn’t just about what you say – it’s also about how you say it. Use your body language to show you are actively listening, do not interrupt the other party and respond directly to what they are saying. This makes the other party feel validated that you are paying attention to what they have to say rather than focusing on your own speech. A common negotiation strategy is the 70/30 rule: listen 70% of the time and speak 30% of the time.

Show empathy by identifying common ground and signalling that you understand why the other party has their conditions, even if you do not agree with them. If a dispute arises, address the issue rather than the person. Offer constructive criticism rather than resorting to personal attacks.

Tip #4: Seek Legal Advice

While this recommendation may seem self-serving coming from a lawyer,  getting the correct information and advice can make or break your contract. Contract law, consumer law, IP regulations and other legal regulations surrounding business practice is not something that you can learn overnight. It is easy for a business owner to overlook things that a lawyer would not and find themselves in unprecedented legal trouble down the road.

You also don’t want the other party to take advantage of your ignorance. Negotiators can, and often will, trick the other party into accepting a bad deal by using complicated legal jargon that they know the other party will not understand. It is also very easy to unknowingly draft unclear terms that are open to unwanted interpretation down the road. It’s crucial to have an educated second opinion even if you think that you do not need it. Contracts are more complicated than they seem.

Conclusion

The contract is the foundation of any business agreement. A lot can go wrong if a contract contains any gaps or inconsistencies, or if you don’t entirely understand all of the terms. Thus, proper negotiation is critical.

If you have any questions about negotiating a contract for your small business, please do not hesitate to contact me. I am here to help.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.