From the September 2000 issue of Entrepreneur

More often than I'd like, clients find me after their deals have gone south and the other side has them in a chokehold. As I examine their deals post-mortem, I can usually trace the cause of their problems back to the original negotiations. For whatever reason, they cut a deal that left them exposed.

Of course, you can't shield yourself against every possible mishap. But there are ways to structure your deal from the get-go to protect yourself after you sign on the dotted line.



A speaker and attorney in Los Angeles, Marc Diener is the author of Deal Power: 6 Foolproof Steps to Making Deals of Any Size(Owl Books/Henry Holt). You can reach him at MarcDiener@aol.com.

Release The Hostages

Stripped of social niceties, business is war, and every deal is like a hostage exchange. In that moment between the giving and the getting, you are most vulnerable. So, depending on which side you're on, time your deals so you can get (or hold on to) as many marbles as soon as (or for as long as) you can. That's how you get what's coming to you. For examples, let's talk about money:

Money sooner is better than money later. Simply put, money upfront completely eliminates the risk of not getting paid. Also, deposits, advances and front-loaded payment schedules test whether the other side is reliable.

Get your money at the source. Paul could wait for John to get his money from Peter, but if I were Paul, I'd rather deal directly with Peter. The names may be confusing, but the lesson is simple: Go upstream.

Get the best money you can. There's money . . . and then there's money! Cash is safer than a check, a certified check is safer than a personal check, and anything is better than a verbal IOU.

Don't spend money you don't have. If your project involves third-party financing, don't make outside commitments before you've got the green in hand.

Don't throw good money after bad. If you're the money man, you've got to reserve the right to pull the plug.

The right to "offset" is closely related. Savvy buyers won't pay everything at closing. Instead, they insist on the right to reduce or hold back money to cover themselves against future problems. Insurance, the impound accounts for taxes, and assessments in real estate deals are good examples.

Take The Lead

There's no point cutting a spectacular deal if you let the other side bleed you with their deceit or incompetence. Try these steps for taking control:

Communicate clearly. This will minimize misunderstandings. Be specific about all your expectations. Attach them to the written contract. Give all your instructions to the other side in writing.

Build conditions into your deal. Ideally, everything you have to do should have a condition attached; if it's not met, you're off the hook. Conversely, the other side should never have an excuse for not performing. For example, when banks loan money to companies, the banks insist on tons of carefully constructed conditions (like limits on capital investment and working-capital requirements) that give them the right to call in a loan at the first hint of trouble. On the other hand, the borrower must make payments no matter what.

Make them get your approval. Make key items subject to your approval. It keeps you in the driver's seat.

Inspect everything. Drop by the construction site, pop in at your tenant's place or stop by your franchisee's store-there's no better way to see how things are really going. The law doesn't always permit such spot checks, but when you can, make these rights part of your deal.

Let them report to you. Why not make yourself the boss in the contract? Give yourself the right to manage the day-to-day, cosign checks, receive reports, supervise and direct.

Next month, in part two of this series, I'll talk about escape clauses, ex-tensions and collateral.