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More often than I'd like, clients find me after their dealshave gone south and the other side has them in a chokehold. As Iexamine their deals post-mortem, I can usually trace the cause oftheir problems back to the original negotiations. For whateverreason, they cut a deal that left them exposed.
Of course, you can't shield yourself against every possiblemishap. But there are ways to structure your deal from the get-goto protect yourself after you sign on the dotted line.
A speaker and attorney in Los Angeles, Marc Diener is theauthor of Deal Power: 6 Foolproof Steps to Making Deals ofAny Size(Owl Books/Henry Holt). You can reach him atMarcDiener@aol.com.
Release The Hostages
Stripped of social niceties, business is war, and every deal islike a hostage exchange. In that moment between the giving and thegetting, you are most vulnerable. So, depending on which sideyou're on, time your deals so you can get (or hold on to) asmany marbles as soon as (or for as long as) you can. That's howyou get what's coming to you. For examples, let's talkabout money:
Money sooner is better than moneylater. Simply put, money upfront completely eliminatesthe risk of not getting paid. Also, deposits, advances andfront-loaded payment schedules test whether the other side isreliable.
Get your money at thesource. Paul could wait for John to get his money fromPeter, but if I were Paul, I'd rather deal directly with Peter.The names may be confusing, but the lesson is simple: Goupstream.
Get the best money youcan. There's money . . . and then there'smoney! Cash is safer than a check, a certified check issafer than a personal check, and anything is better than a verbalIOU.
Don't spend money you don'thave. If your project involves third-party financing,don't make outside commitments before you've got the greenin hand.
Don't throw good money afterbad. If you're the money man, you've got toreserve the right to pull the plug.
The right to "offset" is closely related. Savvy buyerswon't pay everything at closing. Instead, they insist on theright to reduce or hold back money to cover themselves againstfuture problems. Insurance, the impound accounts for taxes, andassessments in real estate deals are good examples.
Take The Lead
There's no point cutting a spectacular deal if you let theother side bleed you with their deceit or incompetence. Try thesesteps for taking control:
Communicate clearly.This will minimize misunderstandings. Be specific about all yourexpectations. Attach them to the written contract. Give all yourinstructions to the other side in writing.
Build conditions into yourdeal. Ideally, everything you have to do should have acondition attached; if it's not met, you're off the hook.Conversely, the other side should never have an excuse for notperforming. For example, when banks loan money to companies, thebanks insist on tons of carefully constructed conditions (likelimits on capital investment and working-capital requirements) thatgive them the right to call in a loan at the first hint of trouble.On the other hand, the borrower must make payments no matterwhat.
Make them get yourapproval. Make key items subject to your approval. Itkeeps you in the driver's seat.
Inspect everything. Dropby the construction site, pop in at your tenant's place or stopby your franchisee's store-there's no better way to see howthings are really going. The law doesn't always permit suchspot checks, but when you can, make these rights part of yourdeal.
Let them report to you.Why not make yourself the boss in the contract? Give yourself theright to manage the day-to-day, cosign checks, receive reports,supervise and direct.
Next month, in part two of this series, I'll talk aboutescape clauses, ex-tensions and collateral.
