5 tips and tricks for negotiating your way in & out of a venture with certainty

Background

Even if you have successfully run your own business in the past, going into a new venture with new people will raise a number of additional considerations.

The following is our top five tips for negotiating your way into and out of a new venture.

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The following general information has been prepared in response to common inquiries from SME clients. It is general information and is not legal advice.

1. Take the time you need

The most cataclysmic failures we see start with someone approaching the negotiation with unrealistic timing expectations, and then rushing into it.

Commonly, we learn of the issues when our client has rushed in and is already bound by an agreement, which is written, verbal, or a combination of both.  Seriously, don’t do this.

If you are negotiating with someone who is in a rush for no discernible reason, and putting pressure on you to "sign-up", walk away. Simple.

2. Manage your costs: scope of service x speed of execution = cost

Remember this function when you are considering whether to talk to your advisors sooner rather than later. 

Regardless of the size of your advisors’ businesses, if you rush your advisors and push for things to be done by deadlines that are not reasonable, then it will cost you more. Likewise, surprising your advisors with unexpected complications, will rarely result in a reduction to your bill.

As the function above indicates, the ultimate cost will likely increase when more services are required (including you not taking the time to prepare materials and information for your advisors), and when those services need to be done in shorter time frames.

Also, don’t be scared to negotiate fees with your advisors at the beginning of a project. Many of us understand the commercial prerogative to control costs, and are willing to provide fixed fee quotes, estimates, and other fee arrangements to enable you to control your costs. When you receive an indication of costs, please take specific note of whether it is a fixed fee or an estimate; and, take the time to understand the exclusions (in relation to a fixed fee), or variables (in relation to an estimate) that may cause additional costs to be incurred.

Other things to look out for include:

  1. All inclusive quotes – especially quotes that do not provide you with an opportunity to reconcile your position at various stages during a transaction. Examples of this often include due diligence in relation to an acquisition – if on the first day of the inquiry your advisor discovers an absolute deal killer, then why continue the inquiry if you are not going to continue with the transaction as a result.
  2. When dealing with other parties in the negotiation, the time spent managing issues created by them or their advisors can be substantial. An advisor who is experienced in quoting or estimating costs relating to a transaction will usually protect themselves from working for free by setting out exclusions or variables in relation to this issue. To manage this risk for yourself, arrange a ceiling of additional fees, or reporting thresholds, so you are informed of additional or unexpected costs.

3. Talk to your advisors early

Talk to your accountant first, if you don’t have an accountant, find one.

Talk to your lawyer as early as possible, if you don’t have a lawyer, find one.

If you need other specific expertise, then find advisors who can assist you. Also, regardless of what your new venture is, it is very likely that someone has been through something similar and has the benefit of 20/20vhindsight. Find this person and see if they are willing to be a mentor; or at least have a short meeting with you to discuss your plans.

When choosing an advisor make sure they can support you in your new venture (both putting it together and with ongoing services once it is set up). Things to consider when choosing an advisor include:

  1. Availability – can you contact your advisor quickly, and do they return your calls within a reasonable timeframe?
  2. Breadth of service – is your advisor an expert with a narrow field of expertise, or can they provide a range of services that you require in relation to the transaction? It is important to consider what you need, and to choose accordingly.
  3. Personality – does your advisor immediately irritate you, or do you find yourself questioning their logic or approach after discussing an issue with them? It will save you time, cost, and anxiety if you can find advisors that suit your approach and the way you work. You don’t need to like them, but if you don’t respect their input then find someone else.
  4. Responsiveness – does your advisor (or their firm or practice) have the necessary capacity to respond to the issues relating to your new venture? This is a serious consideration and it a can be a problem with using small service providers with limited personnel.  It can also be a problem with large service providers where your transaction is not large enough to warrant devoting a whole work unit to your transaction.  We recommed that you ask the question; and if you have the opportunity test them out.

Additional considerations when engaging an accountant:

  1. Does your accountant have all of your financial information current to the last financial quarter, if not can you provide it to them?
  2. Does your accountant have the ability to give you reports on the financial performance of your business, based on criteria that you have set (if applicable)?
  3. Does your accountant take an active interest in your business, and have you made them a part of your competitive strategy for managing your business (if applicable)?
  4. Can your accountant give you advice in relation to:

    1. structuring your affairs for distribution of profits;
    2. structuring your affairs for asset protection;
    3. restructuring your affairs to take advantage of small business tax concessions and incentives, now and in the future;
    4. valuing your business (if applicable), justifying that value, and making sure that the value is defendable in the event that the purchaser/acquirer/other party/ATO takes a different view?
  5. Commonly businesses have an accountant for preparing tax related reports and lodgements, but do not use them for any other services. If you love you tax accountant, and want to keep using them then you should, but if they can’t provide the services you need, then find an advisor who has the experience and expertise to traverse the transaction without undue cost and delay. Discuss the issues with your tax accountant, and if they can’t do the work for you (or look afraid as you tell them your plans), they can probably refer you to someone that can.

Additional considerations in relation to lawyers:

  1. When choosing a lawyer, choose a lawyer with compatible personality traits, experience, and work methodology. Your lawyer will ultimately drive the way your transaction flows and is completed, so if they drive you crazy, the whole process will be more painful than necessary.
  2. A common mistake that we see is people trying to work out what type of lawyer they need to engage for their type of business or venture. It doesn't need to be difficult, call and ask.
  3. Lawyers are not magicians. Despite endless TV programs that make it appear otherwise, your lawyer cannot make your bad commercial decision into a good one. DON'T SIGN ANYTHING, OR AGREE TO ANYTHING, WITHOUT TALKING TO YOUR LAWYER FIRST!

4. Write everything down

When negotiating a deal it doesn’t matter if you run a $0.5M business or a $50M business, there will be plenty of details that need to be discussed and agreed.

Don't get stuck on what to write down if the parties aren’t in furious agreement about everything. The answer is create two lists:

  1. Agreed items;
  2. Yet to be agreed items.

When writing your two lists, don’t spend 6 months negotiating all the little bits and pieces if there is no agreement on the key items. Deal with the issues that matter to you the most first, make sure you have a clear understanding on these, and get to the details once you have in principal agreement on the key terms (remembering the last sentence of item 3 above).  If you need to work out the small stuff on the way, do it, but don’t get distracted.

5. Plan the divorce first

A fundamental part of getting into a new venture with someone else is knowing how to get back out.  Nothing lasts forever. Make sure you know how and when you are likely to get out of the new venture, and then make suitable plans for situations that may require you to get out, despite your intentions otherwise.

New ventures that start without the parties working through their preferences for getting out of the venture, and structuring their deal accordingly, are far more likely to end in dispute or with one or more parties realising no value for their participation in it.

Final comment

If you have any questions about the article above, or you would like to know whether we can assist you with your new venture, please contact us.

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Simon Fifield
Focus: technology businesses Likes: disruptive technology and funding growth Profile
Simon Fifield
Posted in Articles, Corporate.