In part 1, we gave an overview of the four budgets of every negotiation, and we discussed the time...
How to manage any negotiation, Part 1
In his seminal work Start with No, Jim Camp describes the four budgets you manage in any negotiation. Understanding the four budgets and how to manage them can help anyone improve their position, reduce their stress, and save time. Interested? Read on!
When two parties are negotiating the sale of a business, the focus of the seller is often on one thing: the sale price. But that’s only a piece of the puzzle. I’m not talking about the earn-outs, growth rates, and EBITDA, I’m talking about what goes into the negotiation itself.
Jim makes the case that along with price (which he calls the money budget), there are three more budgets: time, energy, and emotion. Just as every buyer has a maximum price they’ll pay from their money budget, they also have a limit on their time, energy, and emotion budgets. It’s in both parties’ interests to carefully manage them if they want a successful deal.
The budgets have a multiplier in terms of their impact on the negotiation. That multiplier is different for each one, but for now imagine that the multiplier for the time budget is 2, the multiplier for the energy budget is 3, for the money budget it’s 4, and for the emotion budget it’s 5. Let’s take a look at the time budget and talk about how it contributes to a negotiation. In future posts we’ll examine the other budgets.
The time budget is typically the least valuable of the four (that’s why its multiplier is lower), and it refers to the calendar. How much time does each party have to do the deal before they walk away. In addition to knowing your own budget, it’s important to understand your counterpart’s time budget. Do they need to get the deal done soon? If they need to get the deal done so they can make bonus, improve their valuation, or go on vacation, don’t you think you should know that?
At the same time, your counterpart may not understand your own time budget, and that could result in the deal collapsing unnecessarily. If you are under a crunch, don’t waste anyone’s time. You don’t need to spill the beans and give away leverage in the negotiation, but if the deal needs to close by Friday, give your counterpart the benefit of knowing that and if that’s not possible, part as friends.
When I was an independent contractor, companies would often try to spend my time budget as we were negotiating a rate for a deal. They knew that as long as they delayed me, it cost me an enormous amount of income while costing them nothing, which made me much more willing to drop my rates to get the deal started (that’s one reason I don’t work hourly anymore). That’s a good example of how buyers manage a time budget: if you’re negotiating while you’re still working on another job, they lose that leverage.
If you’re facing a high stakes negotiation, be it the purchase or sale of your business, compensation, or a particularly big sales deal, contact me for some help in getting the deal done quickly and efficiently (and for a much better price).