You don’t need to be Alan Sugar to negotiate a great contract for your small business. But when it comes to haggling, you do need to know a few things to protect your business and allow it to flourish.
In business terms, this is known as ‘procurement’ – a systematic approach to making sure you’re getting the most for your money and allowing the building of solid, trustworthy business relationships.
Whether you’re hiring a third party for their services, ordering in a large amount of stock or finding a new building to hire, by polishing your procurement process you can save yourself a buck-load
How do I nail the procurement process?
First you need to establish exactly what you need, and then you need to build a brilliant contract (more on that to follow).
What are your requirements? If you need a volume of something, how much exactly are you looking for? If you’re after services, how long will they be needed? And when do you need it?
Set up a brief of exactly what you’re looking for, and then you can make sure everything is included as you hunt for the best deal and tick each requirement off (find an exhaustive procurement checklist by clicking here).
6 steps to negotiate the perfect contract
1. Always work towards a win/win scenario – that is, both parties are being treated fairly, which will nurture a healthy, long-term relationship and increase quality all round.
2. If you’re negotiating a long-term contract, try to arrange for fixed pricing which will give you budget certainty. It’s also common to allow some movement for inflation on the anniversary of your contract.
3. This almost goes without saying, but never reveal your budget up front. Ask for quotes, or possibly an upper and lower range of quotes in case your requirements increase or decrease, and then compare across different companies. This will give you a benchmark and a higher probability of getting a fair market rate.
4. If you want to ensure results, you may want to include incentivising or thresholds to link performance to payment in a contract. For example, a delivery company could have a service threshold clause written into their contract wherein they have an incentive if they hit above a certain amount of deliveries in a specified timeframe (although for straightforward services that are more black and white in what they provide you, this may not be relevant).
5. Consider building performance reviews into a contract schedule (otherwise known as Supplier Performance Assessments). This can help stop any services from becoming passive or supplier over-promising on deliverables. It also allows for a get-out if you’re not happy with the end result.
6. On that note, a good contract will always have a get-out clause as a way of determining how and under what circumstances you can terminate the contract. Clearly defined parameters will make a contract break swift and much more pain-free if you feel you are being treated unfairly.