How to Negotiate Cashflow Like A Pro

…and get anything you want.

Welcome to another edition of a Cashflow playbook! This time, we’re foregoing talking about an actual asset class in lieu of something that will help you BUILD those ass(ets) 🙂 – Negotiating

Summary

Intro: Getting What You Want by Getting to Yes

Everything in life is negotiable. Those who learn that lesson early will reap compounding dividends as the years go by.

Except, hardly anyone does it. A recent study found that those who negotiate can add upwards of $2m extra to their lifetime income. That’s nothing to shy at.

But we aren’t going to do the 101 version, we are going to talk specifically about how you negotiate deals and investments better. So if you want a promotion, new client, better deal or, more money, this is your gold standard. 

Firstly know this, in any negotiation, there are many ways to approach the situation. Harvard published an article by Calum Coburn titled ‘Negotiation Conflict Styles’…that outlines 5 different approaches and when to use each based on a degree of cooperation and assertiveness. But what we’ve found is that the data and frameworks are less useful than specifics and examples. 

Playbook

Steps for Negotiating Like a Pro…Backed by Pro’s

To understand the deeper complexities of how to best negotiate we spoke with Baylor University’s negotiation expert professor Dr. Emily Hunter on tips to improve your negotiating skill, and threw in some of our own. Our full interview notes are here. Dr. Hunter is the Management Department Chair at Baylor University’s Hankamer School of Business as well as a Professor on Negotiation and Conflict Resolution for Baylor’s Professional Selling program. We also talked to one of my investing partners who has done 100’s of deals in his career as well as my largest investors who has done the same. 

I’m also not too shabby. I’ve negotiated hundreds of deals over my years and my biggest lesson for you is my smallest, always ask for what you want, you just might get it. So use these below strategies to negotiate not only your pay but importantly your next promotion, or your next business deal.

How to Negotiate in Business? – the Deal Negotiation Playbook

Step 1 – Practice

Nothing beats practice. Start small, negotiate with friends and family first. Then negotiate with a client, then go toe-to-toe with the boss, then a potential business seller.

Negotiation is in fact,  a skill you can learn aka… put in offers on multiple houses, on multiple biz’s. Ask multiple owners for revenue share. Or even simply, get out of your comfort zone daily by bartering with one person a day you buy from. 

Start with low stake requests–like bartering at a farmer’s market– or scenarios where it doesn’t really matter if you get what you ask for. Asking for a discount at a store is very low stakes, but it helps you practice negotiating when buying a new car.

Is it likely that you will get rejected or denied? Sure, but they could also say yes.

This helps build confidence and force you to get comfortable with rejection. Don’t know where to start? You can follow Jia Jiang’s 100 Days of Rejection Therapy to help get your feet wet.

“My favorite book  for basic negotiating skills is Getting to Yes,” Dr. Hunter said. “It really helps you give you a mindset of being a collaborative negotiator if you’re a beginner and just have no idea how to negotiate.”

As you develop your skills, and begin to negotiate deals with high stakes, with teams and with people of other cultures, Dr. Hunter recommended Global Negotiation as “really good for [developing] those advanced skills of how to negotiate across cultures and really work in a global business setting.”

There is always something to learn for a future negotiation, whether that be an experience, a book or a peer. 

So practice. Put up offers, get turned down, ask why you were. Then repeat with lessons learned.

Step 2 – Prepare

If you are going into a meeting with a biz broker or seller, preparation is key. Be ready to go to war…for what you want of course. However, don’t make the mistake of coming in TOO hot. That might scare off the seller or make them feel you’re too aggressive, hence not the right person to buy their business. Buy Then Build by Walker Deibel notes that you should be prepared enough to make them feel like you’re a ‘cooperative entrepreneur’ rather than an’ aggressive VC.’ 

In these instances you want to be fully prepared and ready for the negotiation with backing to support your offer and their demands. Hence, you’ve already researched the company, done what due diligence you could have with the financial information available and made yourself aware of the seller and their background.

Here are a few things you can prepare yourself with prior to the meeting or call:

1) Bring your LOI/term sheet that should include items like:

• Written offer with refundable good faith deposit of X, let’s say $1,000-up
• Purchase price (subject to due diligence)
• Down payment (cash and/or outside financing)
• Terms and conditions on the balance due, which will be financed by seller
• over a X year period at a reasonable interest rate (I ALWAYS NEGOTIATE 0% w/ upside for them maybe)
• Monthly payments, amount and duration
• Date first payment begins, number of days after closing

Here’s a template if you don’t have one.

2) Bring a copy of your bank statement or financing so they know you’re serious

3) Bring (or explain) your due diligence and plan to close. I.e. I have here a signed non-binding LOI or a term sheet for x price, and x terms as listed above with a 30 day due diligence window.

• Make an offer contingent on something like following (each deal is different hit up your attorney):
  • All financials subject to review and approval by buyer
  • Lease terms and conditions are subject to review and approval by buyer
  • All equipment is in good working order at time of closing
  • All sellable inventory is at a normal level at time of closing
  • Any financing needed by buyer can be obtained at acceptable terms
  • Buyer and seller agree on acceptable industry non-compete agreement
  • Buyer and seller agree on acceptable transition and training period for new management
  • All outstanding legal issues and contingent liabilities disclosed

4) Bring comp’s (just like in real estate). 

5) Bring current market trends. I like to print off the bizbuysell quarterly insight report or a PE report or a Goldman Sachs report 

6) Bring your earnest money or small refundable deposit to show the offer is serious (hold it in escrow).

Another way to prep is to be smart about the setting. Sounds trivial but if you get the owner or other party,  somewhere they’re comfortable, feel heard, and is conducive to conversation you just might have the upper hand! 

Take when  Disney acquired Lucasfilms and all the beloved Star Wars characters for instance. That negotiation began with a secret breakfast meeting as Disney CEO Bob Iger and George Lucas bonded and got to understand the other’s interests.

The meeting had everything—privacy, space and food—that helped make Lucas comfortable enough to disclose that was fine selling his creation of Star Wars (even for somewhat less money), but what really mattered was that he continued to have a creative say in how the story would be told. 

It allowed Iger to properly build a relationship with Lucas and focus on how he would ultimately allow Lucas to have a significant amount of creative control just as he did when Disney acquired Pixar and Marvel.

If you feel the need to have a lil resource with you, complete one of these  negotiation preparation worksheets prior to the meetings so you really understand all the issues and other parties’ interests.

Step 3 – Know your Goal and Your Leverage Points

Prior to the negotiation, you not only want to know what you want but also what you cannot do. For instance, spending over a certain amount or giving away some other asset (like equipment or time to name a few).

Knowing what you want..and what you can afford…is key here. Remember I always say in a deal, I either get my price or my terms. I’ll always want my terms. it’s a much higher leverage point. There are infinite variables between the two, which is why you always come in prepared.

Your preparation phase should’ve already left you knowing your goal, and your limits, on price. For example if you’ve developed your limit of $500,000 purchase price after screening this business to do 3x SDE of $166k, you know what you’re asking for, and what you can’t do.

Just because you know what your ‘walk away point’ will be does not mean you should have a weak goal.

Dr. Hunter explained that “Really understanding before you walk in what your limit is that you’re not going to go past [is important]. More importantly, is understanding your goal and setting a strong goal.”

Rule of thumb though – ASK FOR MORE THAN WHAT YOU WANT..

Henry Kissinger the ultimate negotiator said, “Effectiveness at the conference table depends upon overstating one’s demands.” First because the universe just may give it to you, and then because there will be flexibility on the downside.

Confidence is key here. 

Negotiators who are less confident will set a low goal, which prevents you from truly achieving a perfect solution for you and even prevents an overall win-win solution.

Think about asking for a raise. It is imperative to set your sights high, understand the market and what you are worth on the market to ask for your true worth. Set that as your goal and be focused on that goal.

Now, it is also critical to do your research so that you can best make the argument for your strong position and persuade the other party to agree with your point of view. What are the reliable and objective data points that all parties can agree to in order to use as your foundation for the negotiation?

“Someone who is really competitive and aggressive will respect you more if you come in with your numbers and you know what you’re talking about.” Dr. Hunter asserted. “You’ll gain that respect and I think that conversation will open up more. It might be a challenging conversation but you can call them out on ‘look this is what my numbers show.”

When negotiating a deal, what leverage points do you have? One, is knowing the market economy especially with the price of rising goods and if it’s an aging business.

Another is your track record. Do you have a history of turning around underperforming businesses in a particular topic like sales or marketing? This is a crucial selling point to the seller especially if you’re throwing in terms like seller’s notes or seller financing. 

And remember, you don’t always have to be negotiating to BUY the business. You might just be for a simple new client contact, or, a revenue share agreement. You can review our Cashflow call with Mark Crandall for his strategies on negotiating a revenue share here.

Step 4 – Understand the Other Party (Put yourself in the seller’s shoes)

One common thing that most billionaires I’ve met have in common..is that they are great question askers and listeners. You want to treat negotiations just like this. Ask many questions, understand the seller 

What are their goals and how can you align? How can you put yourself on the other side of the table? How can you understand their wants and needs in order to align yours with them?

This needs analysis resource with questions you can ask,  is a good place to start. 

You want to get to the bottom of why they might be selling and what their motivation is..also what they truly care about. 

If you do not take time to understand the other party, then you will never be able to reach a solution that is deemed valuable by both sides. When thinking about the other party, do not leave any stone unturned. Look for:

• What is their personality?
• What is their negotiating style?
• What is important to them? How will you appeal to these interests?
• What is their culture? How does that culture negotiate?
• How many people are you dealing with?
• Are there any outside factors at play?

In Buy Then Build, Walker Deibel writes that in 99% of the cases, maximizing sale price is NOT a seller’s only goal. They have other qualitative terms that they’re focused on. Asking the right questions to understand the seller puts you in a position to find out what’s most important to them. Because ultimately, you SHOULD negotiate on more than just price…you should negotiate EVERYTHING you can. And understanding what the seller cares about gives you the leverage points in which you can do so. 

Additional negotiation points could be:

1. Deal Structure
2. Transition Plan
3. Milestones
4. Equity
5. Financing Type: aka cash, loan, revenue share
6. Assets
7. Inclusion of debt/liabilities
8. Allowances on non-competes, non-solicits

No matter who you are negotiating with, it may take time and many meetings to build a relationship; establish trust and gain a clear understanding about what the other side truly wants and needs.

Step 5 – Show Up

Alright so you’ve done your prep, you’ve set a goal and your limitations, you know how to understand the other party…you’re ready to physically show up to your negotiation. Here are a few things to consider: 

Don’t come in committed to outcome

Always be flexible on the final outcome. Not showing up committed removes emotional responses that could arise when things don’t go exactly the way you planned. However if you’re prepared, and you’ve done enough research on thes business and know how to understand the seller’s leverage points, you have a lot of flexibility in the areas of the bisuesse or parts of the deal (your terms) that you can adjust to reach your goals. 

An issue is any topic that could come up in the negotiation while an interest is what one party explicitly wants as the outcome to that issue.

Explain why you deserve it and know what you are asking for

For raises or negotiating a service charge, never come and just say, “I want more money”. This rubs me the wrong way when done to me. I immediately calculate the percentage change they are asking for and say, “What are you doing to earn 35% more money?” Rarely do they have an answer and they didn’t even realize they were asking for such a big % increase. Thus, back it up with facts and numbers. Say, “I did x and y and z and my plan for the coming 6-12 months is to accomplish this and that. Given that, I think the work I am doing is worth more than I am currently making. Thus, I wanted to talk to you about a pay raise?” Then shut up. They may be telling you you’re about to get one higher than your ask.

For a business transaction, never just say “I’m going to buy this business for x”. Present to them why you’re qualified to run their business. Remember, it’s an emotional transaction for  them. They want to know they’re leaving their ‘baby’ and employees in capable hands. 

Be likable.. sounds simple, huh?

I can’t emphasis this enough, making your “opponent” like you and want to give you what you want, is worth its weight in gold. That means smile, cajole, apply to their better instincts, state the benefits to them. My go to line is this… “You can’t blame a girl for asking can ya? What kind of employee/sales person/business person would I be if I ask for the business?” BIG HUGE ENDEARING SMILE following.

If they’re reluctant…

Remember the one who wants it less almost always wins. So even if you want this new job/client/raise so badly you would sell out your mother, you need to pretend you don’t.

Let me give you an example, say you have a job offer you’re dying to take, you hate your current job and are about to quit anyways and make $0. Here honesty is not the best policy. Reframe your mindset, they must negotiate to get the best deal for their company and you must negotiate the best for you, so for now, no transparency.

 You can say, “I’m really happy in my current role and growing immensely. I’m always open to the right opportunity at the right company but I’m not actively looking.” Why? Remember playing hard to get with a dude? It’s the same thing, it increases your perceived value, and makes them want you more.

If a seller is reluctant or hesitant, it probably means something in your pitch is rubbing them the wrong way. Remember, you can negotiate on an infinite amount of variables. If you’ve already determined what’s important to them, see how you can sweeten their deal. If they ask for say, 3 things for you to do, that cost you nothing…just do them. For example – their employees are to stay hired as is – there are no layoffs, they’re to receive the same comp or fair market rate, and they want to keep their company name and logo for branding. 

Then when you’re ready…make them an offer they can’t refuse in a Term Sheet Template like this.

Some relevant examples:

Our friend Sam Parr bought Marathon Ranch in Fredericksburg, TX, to AirBNB; however, prior to closing he negotiated for three additional things for the seller to do if he were to pay the full asking price:

1. Leave the house fully furnished
2. Build an extra bedroom
3. Paint a Texas Flag on the shipping container on the property

The interests are what each party wants for any of those particular issues. An employee may want a higher base salary vs lower or an SMB buyer may want to purchase at a smaller multiple.

This is where each party can really get collaborative and expand the pie to create a win-win solution for all. 

An employer could say instead of a lower base salary, we can give you extra bonuses if you hit the production metrics to meet our growth goals. Instead of lowering their price, a small business seller may be willing to seller finance a larger percentage of the sale for the buyer.

This is what our friend Hannah Ingram did when she purchased her first car wash. She built rapport with the owner of a car wash, but could not afford to purchase the business. Instead she ultimately negotiated with the owner to let her buy the business through seller financing and no money down. 

Bonus: Last point and extra resources

After asking for what you want, watch the other parties; reactions. If they easily agree, say thank you and remember next time to aim even higher.  If they look uncomfortable or get ancy I wait for them to speak and then I say with a big huge smile my favorite line again, “Can’t blame a girl for asking can ya? Seems we never get what we don’t ask for?” WITH A BIG SMILE.

Here’s another Negotiating book List for you!

The Art of War

Getting to Yes

Never Split the DIfference

Negotiate a Win-Win

You always should ask for what you want, but you should also be prepared to explain why you deserve it. And…you just might get it!

Stack cash and present a good argument,

Codie and the Cashflow Team

AMA

Crew, we’re doing something extra special for this one. I KNOW ya’ll have a ton of deals you’re looking at that it would be helpful to get a second opinion on negotiating. 

So, we’re going to do a BONUS AMA (outside our regularly scheduled Tuesday calls) where I come in and read through some pre-submitted deals to negotiate LIVE.

Join us Friday, September 30th at 2pm CST for this call!

COMMENT ON THE CIRCLE POST WHEN THIS PLAYBOOK IS DROPPED what your deal is, and we’ll pick some to go over. Live.