How to Make Millions on a Handshake Deal
Entrepreneur's New Year’s Guide
From the medieval days when it originated as a way to show both parties came in peace and were weapon-free, the handshake has been tied to a person's word -- no more so than when used in business to make a deal.
While certainly not as concrete as a legal document, a handshake can be a legitimate way to seal a business deal. Just keep in mind that if it isn't followed up with an agreement on paper, each party must let the justice system decide what's what in court.
Protection, protection, protection
--Bind the deal by having others witness it take place
--Follow up with an email, even if written as a thank you, with details of the agreement
--Keep any correspondence or other documentation that could be used as "evidence"
--Put the deal in motion immediately. Even if the other parties do not act honorably, their compliance can be used as indicating validity
A deal junkie who made billions on handshakes
For the CEO of Camping World, Marcus Lemonis, operating with a handshake is the only way. The self-admitted "deal junkie" built his $3 billion company making more than 100 such agreements, rolling smaller businesses into the brand.
"I don't know if there's an art to it," he said. "I'm a big believer that a person's word and handshake are the best signature you can have."
For the past 12 years, Lemonis has been investing in struggling businesses and taking charge to help them survive. Now, as the star of CNBC Prime's "The Profit," he'll put $2.6 million of his own money into turning around businesses around the country that need help.
How the deal goes down
Lemonis wouldn't give away all his tactics in approaching a handshake deal, of course, but did have some tips.
First, always walk in with a game plan and enough information to be effective, never asking a question to which you don't already know the answer.
Second, keep it basic. The more complicated a handshake deal becomes, the easier it is for the other person to say he did not understand the agreement.
"If you keep it simple and clear ... the only reason you get screwed is because the other person is lacking in character," Lemonis said.
Finally, discuss the essential terms surrounding the economic foundation of a deal: What the business structure will look like, who will pay what and who will get what.
"If I give you a dollar, what do I get for it?" he said. "If you can't agree on these basic terms, then there's nothing you can agree on."
Use paper to solidify a deal, not hinder it
Besides his personal preference for the handshake deal, Lemonis dislikes walking into an initial meeting with a written document because it can weigh down the negotiation. Fluidity is essential to adjusting on the fly, as circumstances can change if a seller's request is reasonable.
"Maybe you'll understand their tax situation better, or their family dynamic, or even the emotions they tie into their business," he said. "If you walk in with a written document it can get visceral real fast." He does get each deal down on paper with an attorney, typically within a week.
Lemonis will never stop doing business this way, he said, though he acknowledges having been burned a few times.
"My attorney hates that I do deals on handshakes because you can get screwed," Lemonis said. "But if someone is intent on screwing you, they're going to do it whether you have it down on paper or not."
When a deal goes bad
Lemonis recalls a deal he made with a business that was set to close its doors last Christmas Eve. He wrote a $125,000 check so the owner could make payroll and settle with its vendors.
"Four days later, they sent me an email and said, 'We don't know what you're talking about. We don't know you. Don't come to our business anymore.' "
Such an occurrence is rare, Lemonis said, and he refuses to let it ruin future deals, saying some people are just bad.
"At the end of the day you have recourse, but it's expensive and time consuming, and it's just bad energy," he said."What am I going to do? Spend $100,000 chasing $100,000?"
Don't be misled: Lemonis takes such an event seriously and stresses that no one should confuse his kindness with weakness. He just realizes that no one is right 100 percent of the time. Rather than dwell on the deals that went wrong, this deal junkie finds it best to move onto the next one.
"Karma's a bitch. And if you go the wrong way in life, at some point it will come back to bite you."
Watch Marcus Lemonis take charge to turn around struggling businesses in the series premiere of "The Profit," Tuesday, July 30, at 10 p.m. ET/PT on CNBC Prime.