URL: http://www.entrepreneur.com/article/31526
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.