Negotiation skills: a guide for businesses

As a small business owner, you’ll be negotiating all the time. Whether it’s a contract with a new employee or payment terms with a supplier, you’ll draw on your negotiation skills regularly.

So taking the time to develop your negotiation skills can benefit your business in a variety of ways.

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What is a negotiation?

Negotiation in business is the process of finding an agreement between two or more parties. This could be an agreement between you and members of staff, customers, or suppliers. You could be negotiating contracts, compensation, or salaries.

Small business owners will regularly need to use their negotiation skills, so taking the time to develop them could be beneficial for your business.

Improving your negotiation skills can help you get the outcomes you want for your business and maximise the potential of the agreements you already have.

What are negotiation skills?

Negotiation skills are often considered ‘soft skills’ which relate to qualities like communication and emotional intelligence.

Small business owners will have to use a combination of these skills when negotiating. It’s important to understand what skills you already have and where you might want to improve.

These are some important negotiation skills for small business owners.

Planning and strategy

Before entering a negotiation, it’s important to understand your desired outcome. It’s likely that both parties will have to compromise on certain aspects of the agreement, so it’s important to know what you want to achieve in the negotiation.

The zone of possible agreement refers to the common ground between you and whoever you’re negotiating with. Thinking about where that might be beforehand can be useful.

For example, if you’re negotiating a contract with a new employee, have an idea of your maximum salary and their minimum. This way, you’re less likely to walk away from the negotiation with an outcome you’re not satisfied with.

It’s also important to strategise around your approach to different scenarios. Consider the different outcomes of the negotiation so you’re prepared for any situation. This will help with your confidence as you know that regardless of what happens, you’ve got a plan.

Communication

When negotiating, try to communicate as clearly as possible and not give too many unnecessary details. Focus on your desired outcome and make sure they understand your reasoning.

But listening is also a crucial part of being a good communicator. In a negotiation, try to adopt active listening.

Active listening is a technique that focuses on what somebody is saying to you, rather than on what your response is. It’s a technique that will help you engage with the other person and understand their point of view.

And in a negotiation, understanding the other party's desired outcomes is crucial to reaching an agreement. Whether it’s with an employee or a supplier, active listening will make them feel like their outcomes are being appreciated rather than ignored.

As the other party is more open to your own perspective and outcomes, the negotiation will be easier.

Persuasion

When trying to find common ground in a negotiation, both parties will be trying to persuade the other that their way is best. As both have their own outcomes in mind, persuasion is a useful skill.

It’s important to understand the people you’re negotiating with. If it’s an employee that you know, you can have a tailored approach that suits their personality.

Being persuasive isn’t about being pushy or overly persistent, it’s about being confident in your ideas and understanding the other party. A calm and empathetic approach is likely to be more effective than an aggressive one.

Disregarding the other party's desired outcome will not persuade them to agree with your own. When negotiating, you need to appreciate their position and try to align their thinking with yours.

Analysis

Using your analytical skills can be useful in two different ways – being able to analyse the negotiation as it’s happening and also how you reflect on it afterward.

Even though you should have a good idea of how the other party will react, sometimes you might be wrong. Being able to tell when your approach isn’t working means that you can try a different way.

For example, you may have planned an assertive approach to a negotiation but you notice the other party looks uncomfortable. So instead, you take a calmer approach and they become more open to your ideas.

It’s then important to reflect on what goes well and what doesn’t. Understand your own skills so you know where to focus.

If communication and empathy are a strength, then use your words to explain your position. If you’re better with strategy, then find a way to show them your plan works for everyone.

You should play to your strengths in a negotiation and work to improve your weaknesses.

Types of negotiation

There are different types of negotiations that are worth understanding because it’s likely you’ll face them in your business.

Once you understand the differences in approach, you can work to improve your skills.

Integrative negotiation

This type of negotiation will happen mainly between you and your employees and it’s when there are multiple things being negotiated.

If an employee wants to reduce their working hours for example, you’ll have to negotiate things like when they need to work, their salary, and their responsibilities.

It’s important to consider the balance between the impact on your business and your employee. Finding a compromise that doesn't negatively impact your business while giving your employee assurances about their request should be the aim.

A good way to approach this type of negotiation is for both parties to outline their desired outcomes. Then you can focus on the common goals from both sides and work together to find a solution.

Distributive negotiations

As a small business owner, this way of negotiating will usually be with a supplier as it’s typically about price.

It’s viewed more as a win-lose in comparison to integrative negotiations. Both parties will have an ideal price in mind and won’t want to compromise.

This is an assertive way of negotiating and can have varying degrees of success. Sometimes it'll be effective at securing a good price but it comes with the risk of negatively affecting the relationship.

If you choose this approach when negotiating with a supplier, make sure you know your request is reasonable. Looking at their competitor’s prices can be a good way to start as it’ll give you more leverage in negotiation.

Negotiation with suppliers in the cost of living crisis

With the costs of running a business skyrocketing due to the energy and cost of living crisis, negotiating with your suppliers can be a way of saving money.

Negotiating your payment terms with suppliers can be a good way of spreading the cost over a longer period of time. With smaller transactions, you’ll usually pay straight away but with larger orders, there may be some leeway.

It’s important to look at the invoice to see what your terms are. Here are some common acronyms when it comes to terms:

• PIA means payment in advance
• Net 7 means payment is required seven days after the invoice
• Net 10 means payment is required ten days after the invoice
• COD stands for cash on delivery
• EOM means payment by the end of the month

This doesn’t mean that you can’t renegotiate these terms. If you use a large supplier, suggesting that you’d like to spread the cost of an order is a reasonable request.

You may want to assure your supplier that it isn’t because you’re in financial difficulty but because you want to manage your cash flow more effectively.

If you do a lot of business with a particular supplier, it could be worth doing competitor research to see if you're getting the best possible price. If you find that you’re not, it could give you more leverage in a negotiation.

You could then negotiate a longer repayment period rather than asking them to match the costs of their competitors.

Visit our cost of living support hub for free guides and resources to help you manage the impact of rising costs on your business.

How often do you negotiate in your small business? Let us know in the comments below.