Best practice for negotiating business contracts

Throughout these unprecedented times, everyone is trying to get the best deal for themselves and their business. Whether you're dealing with a supplier, a contractor or a distributor, thoughtful and calculated negotiations are essential in keeping your business profitable. James Haywood, Business Advisor from our Audit Department, goes through some essential strategies you should think about when negotiating a contract or plan with another business.

You might feel awkward or nervous negotiating a deal with your stakeholders, but it's an essential part of business and ensures that both parties deliver on what's expected. In most cases, your supplier, contractor or distributor will negotiate with their customers frequently. 

Learn what your bottom line is

Work out the biggest reduction in price or increase in cost you can take, while still making a profit. This isn't what you should be aiming for, but it is essential to know while you are negotiating prices. Of course, it's advisable to avoid telling contractors, as they will naturally want to arrive at the arrangement that just about covers your costs, but creates the largest amount of profit for them.

Research Alternatives

Try to take your time researching not only the company but the industry and the people from which you are buying. If you can make your contractors aware of the alternatives, it provides them with the opportunity to justify why their offering is valuable and how it differs from the competition. It is also worth calling around for a few quotes, as this gives you an understanding of the margins that your contractor is working on and how much of a reduction they are likely to make. If there is no clear explanation for higher fees, or a business is offering fees that are considerably lower than the competition, you should politely ask them why this is. Usually the price is reflective of a better or worse product or service, but this isn't always the case.

Aim for a mutually-beneficial contract

Avoid going into negotiations with a harsh 'domination-mindset' and instead aim for an outcome that benefits both parties profitably. By appearing as friendly and cooperative, you are more likely to be offered a great deal by the other party .

Understand leverage

When negotiating, it is important to listen fully to the factors that might limit the other party's ability to offer a better deal. By paying attention to practical issues, such as time constraints or resources available, you may be able to recognise features or services that you don't require in order to keep the price down. Be sure to research how much supply and demand there is for the product or service you are buying or selling, as this can give you more bargaining power too.

Avoid accepting the first offer

Many businesspeople will state a price and will expect customers to negotiate a lower one. Try to avoid accepting a price that you know is high just because it's in front of you. It might be an uncomfortable situation for many people, but you should always be honest when the price is too high. If you are uncomfortable in saying the price is too high, consider talking to an accounting or legal professional who specialises in your industry. This will also give the impression that you're not afraid to politely decline, which can help significantly when it's time to renegotiate.

Consult a professional

Whether it's hidden fees, quality issues or poor service delivery, drafting and reviewing a quality contract is often a long and arduous process. For important or large deals, it is essential that you find a business professional that specialises in the same industry as yours, as they will know what to look out for within the contract in order to ensure you are getting a good deal.

At Page Kirk, our aim is not simply to provide a basic compliance service, but also add real value and insight for our clients by sitting alongside them as trusted business advisor. We find that our clients want somebody they can rely on, not least to be a port of call for any queries or questions which they encounter while running their business. Do you want a team of trusted advisors to discuss the practicalities involved in running your business? Statutory compliance services are a given, but this is the type of advisory service which really adds value to any company. For more information, please call us here at Page Kirk, on 0115 955 5500 or email enquiries@pagekirk.co.uk.