MAKING DEALS

Below are more of Steve’s tips and tricks about the process of putting together agreements for your business.  

Steve’s First Rule of Business

Nowhere is Steve’s first rule of business, more important than in the process of making deals. If you missed Steve’s first rule of business in the “Running a Small Business” tab, it is simply this: “Don’t do business with a crook.”  If your counterpart in a negotiation has no integrity, no amount of good advice can protect you.  A good contract is simply the careful documentation of the party’s expectations at the time of the deal. Everyone’s memory has a tenancy to migrate over time.  A good contract can only keep an honest person reminded of where the deal began, but even a well drafted contract has a difficult time holding the slimy and the slippery to the truth of an arrangement. They will claim oral modification of the contract after the fact, or anticipatory breach of the contract by you, or modification by course of dealing, or any number of other slimy legal theories calling black white and white black that can keep you tied up in court for months if not years.  If someone is willing to tell the big lie, you may win eventually but at a high cost. 

Negotiation Techniques

I once had the pleasure of proposing a deal to a legendary deal maker, Larry Miller.  I was taken back by his style. He started out with an air clearing statement “Lets just talk possibilities. Everything we discuss is confidential and we are not making promises, just talking.” Thereafter the discussion was loose and wide ranging, the conversation was two way, candid and very productive.  In a very short time I understood his concerns, expectations, motivations, and the variables he was dealing with.  Likewise he quickly knew exactly what we were thinking and what we could offer him.  Though the deal didn’t pan out it was refreshing to speak to someone who was so straight forward and let you know immediately where he stood.  The parties expectations were on the table at the outset.  I found this technique very effective and confidence inspiring, which takes me back to Steve’s First Rule of Business. Being straight forward, candid, and up front about your expectations can allay fears about your integrity and genuineness.    

Clear Expectations

The essence of a good contract is the clear documentation of the expectations of the parties at the time the deal is made.  It follows that if you need a lawyer to interpret your agreement you don’t have a good agreement. A good agreement starts with a clear understanding of the basics which are surprisingly hard to come by.  For example: Who are the parties to the deal.  This sound obvious but in many deals this basic fact is not nailed down until late in the game.  Am I dealing with an L.L.C., a corporation, or an individual. Do I have the company name right?  Is the entity still in good standing?  Are there several entities with similar names and which one is the real party in interest?  Where are they incorporated? Who exactly can sign for the company according to the state records?  How is the property, equipment, franchise, etc., actually owned?  What is their address? Many a contract has failed as a result of mis-identifying a party. 

To carefully document expectations you first need to smoke out your own expectations.  This can be harder than you think.  You will need to ask yourself a series of questions: What are my responsibilities in the agreement?  What are the responsibilities of the other party? Ask yourself the who, what when where . . . questions. Who will do it? What will they do?  When will they do it?  Where will they do it?  Why will they do it?  How will they do it? And perhaps most importantly and most overlooked: What happens if they don’t do it? If you can answer these questions for yourself and articulate your expectations for the other party then you have the basics of a deal.  The big question then is: Does the other party share the same expectations.  If so you are ready to go.  Many a client has come into the office needing a “simple” agreement with a proposed business associate. When we start probing the who, what, when, where, how, and what if they don’t questions, we find the parties are not even close to a deal. To tie someone into a contract with hidden clauses and camouflaged expectations is to doom the client and the other party to the black hole of litigation. To help clear up expectations we strongly recommend starting any deal with a deal points document. 

Deal Points

If you want to run up attorney’s fees and frustrate those with whom you expect to deal, hand them a fully drafted 30 page document that purports to be a deal without first nailing down the deal points in writing. You will find that you never get to the end of the changes. Just as you are about to sign, another couple of issues will pop up and then a couple more and then a couple more. The lawyers on both sides will read through the documents each time wasting hundreds and sometime thousands of dollars in fees before the document finally represents the expectations of the parties. On the other hand, if you start with a one or two page bullet point outline of the deal points reflecting your expectations for who, when, where, . . . , you will quickly identify the differences between your expectations and those of the person with whom you are negotiating.  This facilitates quick resolution of problems and builds mutual trust spawning confidence that neither you nor the other party are violating Steve First Rule of Business. 

Before you submit your first deal points document, review it with your attorney. He or she will help you include points you have not anticipated and maybe eliminate points that are ill advised. Clients are usually best at defining the basics of a transaction: We will buy 50,000 beryllium spheres at ten dollars each to be picked up at Goblin Valley on the 3rd of November, payment in ten days after receipt.  Experienced small business lawyers are uniquely qualified in the specialty known as Murphy’s Law. What do you do if something goes wrong? If someone fails to pay will there be a personal guarantee? What are the warranties of the product or the service? If something breaks down, what happens? If there is a breach of contract is there liability for the consequential damages which could exceed the contract price by a thousand times? Do you need special payment arrangements, such as a letter of credit or automatic clearing house payment? Will there be a lien on collateral to secure payment?  The major Murphy’s law issues should also be negotiated up front and not slipped into boiler plate in the back of the document. 

When your deal points document is complete submit your deal points to the other side. Make sure that your deal points document states clearly that it is for “discussion purposes only and not intended to be a binding contract.” Once you and your negotiating partner have hammered out your expectations in deal points form, you are ready to draft the document. 

Final Documents

Always have your attorney do the first draft. You may think it will save you money to have the other party’s attorney do the draft, we have not found this to be the case because reading through someone else’s document and suggesting changes is usually more time consuming and hence more expensive then incorporating the deal points into our own forms. In addition, the devil is always in the details. Your attorney will make sure the details conform to your expectations.  As drafts go back and forth your attorney can maintain the root draft and your attorney will not have to reread it every time there is a change just to make sure the other side isn’t pulling a fast one (like changing the word “net” to “gross” without noting it, as happened to a client recently).

Always carefully read the final documents before you sign. My experience is, there is almost always an error. Sometimes the time that has elapsed to get the final documents done has caused a change in circumstances which require the performance dates in the documents to be changed.  On occasion an unscrupulous party has made small changes that are easily overlooked but make big differences in the substance of the deal.
Many deals have multiple documents that are attached as exhibits.  Don’t sign the exhibits attached to the original document. Have clean signature copies of the exhibits printed out for execution. Lastly, don’t sign multiple copies of a promissory note. You wouldn’t sign two originals of the check you are giving the seller.  A promissory note is a negotiable instrument like a check. The seller is only entitled to one original. 
 
Brought to you by Business Law Associates, L.C., Utah's Small Business Law Firm, 8170 S. Highland Dr, Suite E5, Sandy UT  84093, 801.944.5255.