5 Unexpected Business Decisions You Should Negotiate
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Research from CB Insights found that 29 percent of companies that fail do so because they run out of money. Some businesses fold because they don’t raise enough investor capital, but they often go under because they pay too much for things they need. Employees, leases and vendors are expensive necessities. To make the most of every investment, you need to know when -- and how -- to negotiate better prices.
Negotiations aren't just for sales teams. Business owners can save significant amounts of money by using negotiation tactics in some unusual places. Consider negotiating in these areas to help cut your costs:
Most businesses don’t know their lease renewal is negotiable. Conventional wisdom has been that when the terms are up, the best you can do is sign the renewal. But that's not the case. The same incentives offered to new tenants -- rate negotiation, tenant improvement allowances, free rent and more -- can also be achieved at lease renewals.
Empty spaces cost property owners a significant amount in lost income and operating expenses. And, just like attracting a new customer in any other industry, it's typically more expensive for a landlord to re-lease a space than to renew an existing tenant. Companies with good payment histories can have a lot of leverage in lease negotiations.
Never agree to a lease renewal without first understanding your options. CARR, a provider of commercial real estate services for healthcare tenants and buyers, recommends tenants hire qualified representation to evaluate their top options. In doing so, they'll save a significant amount of time and ensure they're receiving the most competitive terms possible.
2. Employee benefits.
Every new employee wants to earn the biggest possible salary. Many of the best come in with demands that are either difficult or impossible for small companies to meet. However, instead of offering more pay, companies can negotiate extended benefits to attract (and retain) better workers.
Work-life balance is more important than ever, and digital tools make compromise more realistic for today’s workforce. Offer perks like flexible time off, extra PTO and work-from-home options to get top talent for less money. For those who insist on extra cash, Advantage Resourcing recommends a one-time bonus, stock options or tuition reimbursement to sweeten the deal.
Job sites advise employees ask for non-monetary perks, so savvy employees know they can bargain beyond salary. Find a compromise that works for both sides. Don’t try to go too low on base salary, though, or you risk gaining a bad reputation as a cheap company.
3. Supplier packages.
Suppliers and vendors like to present their packages as shopping lists, but that doesn’t mean they're as inflexible as a grocery store. Instead of paying list prices for office supplies and industry-specific needs, shop around with suppliers and use different offers to find the lowest rate.
That doesn’t necessarily mean you should go with the cheapest option, of course. Reliability and quality of supplies are at least as important as cost. Compare the options on the market and pick your favorite prospective suppliers before talking to your preferred options to find an agreeable middle ground. If you don’t need parts of packages or would like to adjust the volume, it never hurts to ask.
Consider your leverage in supplier negotiations. If you're a big client, you have more wiggle room than most.
4. Loan terms.
Banks enjoy a position of power in the business world. Without their money, small businesses don’t have the lines of credit and funds they need to provide their services and products. However, while small business loans may appear to be hard numbers, smart owners can find great rates and better terms with some effort.
Like with suppliers, finding the best bank rate starts with a little digging. Shop around with big banks, local financial institutions and credit unions to get a range of options. With that information in hand, pick the best service providers and ask them to beat the rates offered by other companies. Some banks may refuse to negotiate, but most will be willing to listen to keep a good business account.
According to Paola Garcia, a small business advisor at Excelsior Growth Fund, financial negotiations go more smoothly when you know the terminology. Before trying to talk shop with banks, bone up on financial covenants, balloon payments and other important subjects.
5. Debt settlements.
Most businesses owe a variety of debts. When times get tough and payments get tougher, don’t just sit back and hope sales turns around. Reach out to owed parties and negotiate more favorable terms to keep both sides happy.
The last thing a creditor wants is to see a client go bankrupt. That applies to secured creditors, unsecured creditors and property lenders alike. If you’re having trouble making your payments, call to speak to whomever owns your debt. Be upfront about your situation, and provide hard offers to fulfill your obligations. A creditor would rather get 60 percent of your debt directly than a fraction of that after your business goes under.
Be cautious with this strategy. While debt negotiation can save money in the short term, frequent underpayment will lead to denied lending applications in the future.
Small business life is tough -- don’t make it tougher by paying more than you must. Look at your expenses, and think about how to negotiate those costs down. With a little time, research and smooth talking, you can keep more of your money and use it to grow your company over the long haul.