The sheer length of contracts is enough to intimidate most people and prevent them from thoroughly reading agreements before signing at the “x.” Then there’s the mind-numbing legal-eze. And we can’t forget about the fine print. If contract length and legal-eze. don’t do you in enough, the fine print almost always will.
Until now.
Today we’re going to equip you to become a contract negotiating ninja—someone that knows what to look for, what to look out for and how to negotiate terms that are mutually beneficial so you can reduce expenses without sacrificing what’s most important to you.
5 Things To Consider Before You Sign A Commercial Rental Lease:
- Evaluate the length of the lease: one to two years is typically best for small businesses, with the option to renew at the end of the lease. This gives you the freedom to move if you find a better location but allows you to stay if you like the space. For businesses that are extremely dependent on location, such as restaurants or store fronts, a longer term is best—usually 5 years is a good starting point. In most cases, if you sign a longer term lease, you can negotiate at least a few months of free rent so be sure to ask for that.
- Do your research: Before you talk to any potential commercial real estate agents or landlords, be sure you have a solid understanding of the rental rates in the area you’re eyeballing. This will allow you to negotiate a fair price as well as work out renewal options. It’s also important for you to make sure you protect yourself from big rent hikes once your initial lease expires. Don’t sign a lease allowing for renewal at “fair market” price. This is the rent they would get from brand-new tenants; and you should be getting preferential treatment for being a loyal tenant. Executive workspaces are known for hiding this information in the fine print of their agreements.
- Look for hidden costs: Find out if the proposal you’ve found is for a “gross lease” (where all costs are included) or a “net lease” (where there are costs in addition to your rent). If you’re responsible for maintenance or upkeep of common areas, kitchen fees, internet, telephone lines, parking, etc. your expenses can take a dramatic turn in the wrong direction really fast.
- Ask for things that work in your favor: Make sure you are permitted to put up signage for your business where you want to put it. Try to negotiate the option to sublease just in case you need to relocate or close suddenly. Try to include a clause that states the landlord is responsible for making improvements to the property before you move in. It won’t hurt to add something to your contract that states your landlord will clean the carpets and repaint the walls annually. This is the time to ask for what you need. Don’t be shy.
- Check the termination terms closely: Be sure to negotiate any penalties for early termination upfront, just in case the need arises. You never know when “life will happen” or when a disruptive neighbor will move in next door. Also, make a point to clarify the date in which you’re required to provide your termination notice. We’ve seen some landlords require more than 3 months notice and automatically renew leases if you don’t comply to the terms in your agreement!
5 Ninja Tricks To Use When Negotiating Contracts With Vendors And Suppliers:
- Negotiate on value: If you’re a stellar negotiator and you’ve already managed to get the lowest price your vendor can offer, that doesn’t mean you’re necessarily done negotiating. Ask your vendor to sweeten the deal without raising the price. This is the time to secure longer pay terms, overnight delivery, or to get your hands on free tickets to the upcoming game.
- Negotiate AP Team & Price Lock: A longer AP (Accounts Payable) term allows you to keep a consistent cash flow so you can reinvest in your business as needed. You’ll also want to request volume discount pricing even though you may not be ordering the exact quantity required. Remember, everything is negotiable. Also, make sure to negotiate price locks so you don’t get stuck with a surprising bill along the way once you fall in love with a particular product or service.
- Think through the worst case scenarios: What happens if a shipment is late, if the products are poor quality, or if you experience unsatisfactory service? Determine in advance how you will expect to be compensated for any financial loss you experience as well as when you’ll be allowed to get out of your contract and find another vendor if a problem continues to happen.
- Get clear on your priorities: Know the difference between what you need and what you want and make a list of priorities before you start negotiating. The reality is, you’ll rarely be able to negotiate a contract to perfectly match everything you want, but you can get awfully close with a little effort.
- Know your bottom line – Is there a maximum cost you absolutely cannot exceed? Do you have one or two things that are non-negotiable? Be super clear on what your bottom line requirements are so that you can walk away if it’s just not happening.
The most important step when negotiating any contract is to be sure and read it in its entirety before signing. You want to be sure you completely understanding everything you are agreeing to so you don’t get yourself into a sticky situation.
Check back with us next week. We’ll be talking about how good tax planning can take a bite out of your expense budget.
