There is a great indicator as to how well a deal is going to be for your company. It’s how quickly and easily the deal is put together and finalized. The longer a deal takes to put together, the less lucrative it’s going to be.
We’re not talking about hastily executed contracts where someone gets swindled. That’s a whole different story. This is about good or possibly good business that turns out not-so-good.
It doesn’t really matter how large or small the deal is. It could be for a hundred bucks or it could be a billion dollar deal. The longer it takes to put together, (from the sellers perspective) the less lucrative it usually is. From the buyers perspective, it could be a better deal. But a lot of times the buyer is just stalling the deal because they honestly don’t have the money and they’re having difficulty raising it.
The Difficulties With Long Negotiations
Business deals take a long time to put together when there is a wide gap between what each party wants and what they’re willing to give. There’s an inherent opposition and a lack of clarity in the deal.
Profitability is what suffers from long-winded dealing. Profitability on both sides. Usually the seller has to give up considerable concessions and the buyer still can’t get everything he needs on his end. Here’s where the profit gets eroded:
- Tighter specifications. These are additional, technical, quality or information requirements requiring more work to be done for the same price.
- Capital requirements. Sometimes special equipment or systems have to be put in place to satisfy the tighter specifications.
- Market competition. Sometimes heavy pricing negotiations occur when there’s little margin to be made. A small shift in the market can cause that small margin to crumble completely.
- Time. Time is money after all. The longer you work on a troublesome deal, the less time you have to put into other, potentially more lucrative ones. The longer a deal takes, the hastier the details get when it gets down to the short strokes.
Why Quick Deals Work
When everybody is clear about what they need from the deal it’s easy. The pricing is fair and profitable for everyone. The goods or services are of suitable quality. It just works.
The reason it works is because the two (or more) companies are suited for each other. They’re the right people in the right place at the right time with the right stuff for the right price. It’s that simple.
How To Combat Slow Deals
Sometimes a business deal seems so important because it’s large and you really need the business. Don’t get into the position of needing the business that bad in the first place. It’s bad for negotiations. The way to combat this is to think sales, capital, purchasing … in that order.
If you want the business, but the survival of your business isn’t counting on it, know your limits. Know what you’re willing to give and what you need in return. Spend your time working on more lucrative deals and put a little attention into the difficult ones as you need to.
If you feel that a long negotiation is starting to suck you dry or causing you to give unreasonable concessions, step back. Regroup. You can adjust what you need with what you’re willing to give as the deal evolves. Just make sure you’ve got a mix of those things that you’re comfortable with.