To be successful in franchising or any kind of business, you must be an effective negotiator. One reason for this is that if you negotiate well — that is, you and your negotiating partner both come out with a good deal — you will sell more, spend less, and potentially have higher profits to sustain your business long enough so that it can reach adulthood. Many people start businesses and are much too quick to accept cost burdens that can have far-reaching impacts:
- If you negotiate to purchase an existing business and you overpay, you could be saddled for years to come with higher loan payments.
- If you borrow money to fund your startup and you don’t negotiate the interest rate but just accept it as if the bank is a deity of some kind, you will pay thousands of dollars more over the life of the loan. Before you sign any loan agreement, play around with the loan calculators at BankRate.com. For example, let’s say you borrow $100,000 and the bank offers 7 percent for fifteen years. You will pay $61,789 in interest. What if you could shave one-half percent off that rate? You would then pay $56,799. Is five grand worth negotiating for? For a business that makes a 20 percent pre-tax profit, $5,000 is the equivalent of $25,000 in sales. If you don’t think that’s important, you will not be a successful franchisee.
- If you sign a retail lease and could have done just a few hundred dollars a month better by negotiating more, the affect of that burden will haunt you for five to ten years.
- If you don’t absolutely hammer the car dealer who sells you the vehicle you will use for business, you are a sucker. This is the one place where you can and should arm-wrestle the dealership almost to the point of them throwing you out. If the dealer is smiling at the end, you did a bad job.
How to Improve Your Negotiating Skills
The best negotiator I know is my friend Oakley Gentry, who was one of the biggest retail boat dealers on Long Island for more than 20 years before he sold his business.
There are a number of tricks to become a better negotiator quickly. Here’s what Oak recommends you do. His advice is centered on the importance of talking less, listening more, and letting silence happen. His advice can be adapted to almost any negotiating situation:
1. Interview the prospective client. Always be kind and nurturing. Ask for permission to ask a few questions. Listen.
2. Qualify the buyer. Make sure the decision maker is in a position to commit.
3. Find the pain. People buy to satisfy a need. Ask, “When you say X, what do you mean?” Ask them to explain their pain.
4. Talk about budget. Figure out how much they are willing to spend.
5. Fix the pain. Ask the buyer, “What would you like to do now?” It’s decision time. Be silent. Let the buyer commit.
6. Negotiation. Ask the buyer, “When you say the price is too high, what do you mean?” Be silent.
7. Work it out. Close the deal.
8. Post close. Ask the buyer, “Are you okay with the transaction?” Surface any lingering issues and address them so the deal doesn’t become undone.
Believe me, if you can become as good a negotiator as Oak, your business worries will be over. To Oak’s expert advice and eight-step process, I add three more steps.
9. Slow Down. Good negotiating requires patience. Oak has an uncanny knack for being able to remain silent when most people get verbal diarrhea when they negotiate. Focus on saying less and doing less. Also, slow down all the random saying and doing. When I first started in my coffee and smoothie catering business, I’d get a call from a party planner or caterer that would go something like this:
ME: [Cheerfully, hey the phone’s ringing!] Hello, this is Mitch!