Business Finance - Management Assignment: Negotiation Mapping

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Contract Negotiations

Processes

Strategies

Techniques.

The goal of a contract is that you reach a fair, reasonable, and beneficial written instrument that both parties have agreed to.

Step 1 of Contract Negotiation Process: Prepare, Prepare, Prepare.

The Contracting Process

Negotiations

A contract negotiation is not a race to win. Because even the most favorable agreement (Win – Win) can turn into a loose – win, or worst a loose – loose. The best negotiator is not the one who talks the fastest or has the most leverage. It’s the team who has properly prepared for every potential eventuality. Anticipation and foresight based on your preparation makes you prepared to enter into a win – win agreement. Negotiation is not a race to the finish line it’s a process that is aimed at bring both parties to the bottom line signature that mutually assures that the parties on both sides will receive the bargained for benefit they agreed to.

Imagine having to negotiate a contract with your supplier and you have no clue about the price of the supplier and how that compares to the market. That means that you must have conducted a price/cost analysis, and you fairly know what it costs the supplier to deliver goods/services.

This is just an example of being prepared. Below are some other things that you need to prepare:

1. Issue Identification Identify the issues you want to negotiate. For example read the suppliers offer, highlight important parts and jot down notes about part that you are not clear, or that you cannot accept.

2. Issue Information Have good information about each issue that you want to negotiate (after all this is what preparing is all about).

3. Classify the Issues. Classify them according to: Negotiable – these are issues that you can negotiate and be flexible. State your maximum that you can negotiate on these points, so that at any point in time during negotiations you know your limit. (just in case you go over your limit and then you get that Donald Trump famous saying: “You’re Fired”). Non-Negotiable – these are issues that you will not negotiate and not budge.

4. Prepare the meeting agenda. When doing this you will outline your issues again, but more importantly you would want to give the supplier the first turn to highlight any issues they may have with your contract. When you have a prepared meeting agenda, you will work according to that, and will not forget any point.

5. Get ready to Negotiate Understand the most important thing before going to the negotiation table: Most issues can be negotiated.

Yes, some “negotiation gurus” mention that ‘everything is negotiable’, but in real life it is not so. There are things that you or your supplier will not budge no matter what. With that in mind be positive and believe that it will go well. Most of the time it will.

Step 2 of Contract Negotiation Process: Negotiation Meeting This is the meeting proper where you (and your team if there’s one) will sit down with the supplier. Important here is that this meeting most of the time is not called negotiation meeting – but any time you meet with a supplier to discuss their offer it means you are negotiating.

Your negotiation outcome however is most likely achieved before the meeting ie during the preparation stage, so again do not set foot in a meeting without being prepared.

If at any point during the negotiating meeting you find that you did not prepare for a certain issue, then simply mention that you would need to get back to the supplier on that issue. Then work out the other issues.

Some meeting tips:

• Be friendly but professional e.g. I’m glad we have a chance to sit down and discuss how we can work together.

• Be positive e.g. It’s good that I hear you have the same viewpoint on this. • Do Not Get Angry or Emotional. Keep your cool & calm. It’s just business

after all. How do you do that? First, pause for a few seconds before saying something Second, if you are thinking whether something that you may say would offend the supplier, then don’t say it. However, if you really thought about it coolly, and then you still want to say it, then just go ahead and do it. For example during a meeting that we had with a client he was discussing about the need of getting a lower price without committing to a long term contract or bigger volume. When probing he revealed that it was their policy that even after a contract was concluded, they would still be looking for other suppliers who may offer lower prices. We simply said: “It looks like your philosophy towards your suppliers is – I’ll screw the supplier at the moment that I get the chance. It is difficult to then offer you what you are asking.” The client kept his cool and then said that it was the direction from HQ. Thirdly, breath deeply. It relaxes you. You may even joke with the supplier that you are practicing your breathing so that you don’t get angry or upset with what he said.

Step 3 of Contract Negotiation Process: Summarize all points This is very important, as you need to get the other party’s agreement to all the points that you discussed. You can simply divide this into 2 categories:

a) Points that you have already agreed; and b) Points that you or the other side would need to get back to each other.

Some of the points to summarise are:

• Payment terms • Contract volume • When the contract/work will start • Price for the Contract

Once you have written this down, simply shoot a quick email to the other party and ask for their acknowledgement/agreement to this. Mention that if they have anything to add, they can add it during their reply to your email.

To write about the contract negotiation process, it may actually take much more that what is written here, but we trust that this simplifies you contract negotiation process to simply 3 steps. And that is key – simple.

REAL ESTATE SALE CASE STUDY

Background

SALES INFORMATION

Property Location:

1424-1450 N FEDERAL HWY,

BOCA RATON, FL 33432

Price $5,990,000

Sale Type Investment

Cap Rate 7.01%

Sale Conditions Lease Option

Property Type Retail

Property Sub-type Restaurant

Less

 General Retail Freestanding

 General Retail Storefront Retail/Office

 Office Medical

Building Class C

Lot Size 1.36 AC

Gross Leasable Area 7,615 SF

No. Stories 1

Year Built 1970

Tenancy Single

Parking Ratio 10/1,000 SF

Zoning Description B4

APN / Parcel ID 06-43-47-20-15-001-

0011

Date Created 5/29/2019

ID#: 16181065 Last

Updated: 6/18/2019

DESCRIPTION

Total 7615 Sq. Feet 6,000 Square foot Under Air, with a 1,615 square foot Outdoor Covered Patio and deck for outside dining.

HIGHLIGHTS

 Local 24-Hour always open 30 year old diner chain currently in three locations

 Walking distance to Downtown and Mizner Park and the Museum. Additionally, the IPIC Theater is just within half mile

 Property can seat 259 combined inside and outside, 93 Parking spaces and a covered patio seating with a full bar and wine case set up

 Located on the FAU (Florida Atlantic University) corridor on Federal Hwy just north of Glades Road with a B-4 Zoning

 Current tenant in building is relocating by August 31st, 2019 meaning this is a wonderful owner/user OR investment opportunity

 Strategically positioned along heavily trafficked North Federal Highway with a Vehicle Per Day count of over 34,000 cars

SALE NOTES

Free-Standing Restaurant Building, For SALE at $5,995,000 OR NNN Lease for $35,000

monthly, plus $4,200 in property taxes monthly Current Tenant Relocating by July 2019 or

August 2019. The property is offered for Sale or Lease By the Owner. Half A Mile North of

Mizner Park, Boca Downtown Museum, and IPIC Theater. Free Standing Luxury Building

recently renovated in 2013, In and Out. The current tenant operates 7 Days a Week, 24 Hours.

Tenant scheduled to vacate in July or August of this year, per request. Exterior covered Patio

and partially uncovered with Fire torches and Water Fountain. Full Bar and Wine Cabinet

Display area. Dining room Kitchen with Hood, separate Chef's Kitchen with Hood and Main Line

Kitchen with On Demand Hood.

Brokers Representation of Property owners position

1) The Owners position: What do they want? Why?

The Seller would like to capitalize on his most profitable real estate holdings. Selling the

property at maximum return is the Owner's ultimate goal, and she realizes that the age

of the building is eventually going to present problems in any future sale, even though

the building was recently completely renovated. The building owners' interest is to sell,

preferably within the next two months, before or on the date of the current lease

terminates. If not, the Owner's carrying cost increases since the building may go vacant

until she identifies a new leaseholder. A sale solves all of the Owner's issues because

the price includes the Amortization of the building renovation costs in the asking price,

including a six-month lease recovery premium in the event the building was to remain

vacant until a sale. The Broker has stated that that the Owner would consider a lease

arrangement either a straight term or a Triple Net lease. There is also the option for any

variation such as a Net or Net-Net Lease with terms such as taxes, utilities,

Amortization of the renovation costs, and rent-plus percentage based on Gross income

from the Restaurant.

The property owner believes that the property fits well within Sally's plan to establish a

new Restaurant. Great location, floor setup, lots of parking. The current tenant has had

an exceptional long-term reputation in the area, and the customer base should help

establish and carry over to the new Restaurant.

The though is that If the purchase price is too top-heavy, maybe they will consider the

NNN Lease options. There may be some room for negotiation on the purchase price,

but that depends on Sally's costs model. There may be a slight margin based on the

carryover of the tenant or discounting the lease price if Sally assumes the final lease

period any holdover pass the lease period. Also, the cleanout costs are high, and

maybe if there was an assumption of that responsibility, there could be adjustments

made.

An assumption probably would make sense if Sally wants to get in early to renovate to

the floor plan and set up the kitchen and dining floor and start ordering and stocking

foodstuff.

The Owner believes that his walk-away alternative is that he will not go over a 20%

discount on all pricing terms. He is willing to carry the property until a buyer comes

along within, at least the end of the current tenant lease expires.

The Owner will discount the price of the sale by as much 30% net thirty-days if offered a

cash buyout and not have to wait for financing to take place.

The Owner realizes that the best solutions for both parties would be to reach a

reasonable price reduction with incentives to close early and turn lease period revenue

over to the buyer.

FINANCIAL SUMMARY (PRO FORMA - 2019)

Gross Rental Income

Annual $420,000

Annual Per SF 55.15

Other Income

Annual -

Annual Per SF -

Vacancy Loss

Annual -

Annual Per SF -

Effective Gross Income

Annual $420,000

Effective Gross Income

Annual Per SF 55.15

Net Operating Income

Annual -

Annual Per SF -

DEMOGRAPHICS

[1 Mile \/]

HOUSEHOLD INCOME

$0K - $35K 32% $35K - $75K 34.4% $75K - $100K 10.2% $100K+23.4%

Income Thousand

$0K - $35K 1,775

$35K - $75K 1,910

$75K - $100K 564

$100K+ 1,299

$96,376

Average

AGE DISTRIBUTION

0 - 1920.1%20 - 2913.6%30 - 3914.8%40 - 4912.4%50 - 6420.8%65+18.4%

Age Year

0 - 19 2,869

20 - 29 1,934

30 - 39 2,113

40 - 49 1,763

50 - 64 2,962

65+ 2,618

41.4

Average

TRADE AREAS

1 mi 3 mi 5 mi

[15 Min Drive \/]

Total Population

1 Mile 14,259

3 Mile 74,783

5 Mile 177,827

2010 Population

1 Mile 9,942

3 Mile 57,482

5 Mile 153,525

2024 Population

1 Mile 15,710

3 Mile 81,307

5 Mile 190,006

Employees

1 Mile 15,760

3 Mile 84,516

5 Mile 171,639

Total Businesses

1 Mile 2,191

3 Mile 8,493

5 Mile 15,527

Average Household Income

1 Mile $96,376

3 Mile $110,391

5 Mile $98,696

Median Household Income

1 Mile $59,231

3 Mile $74,611

5 Mile $65,969

Total Consumer Spending

1 Mile $163.57M

3 Mile $936.46M

5 Mile $2.2B

Median Age

1 Mile 41.2

3 Mile 47.1

5 Mile 48.7

Households

1 Mile 6,325

3 Mile 32,447

5 Mile 81,325

Percent College Degree or Above

1 Mile 25%

3 Mile 27%

5 Mile 26%

Average Housing Unit Value

1 Mile $498,302

3 Mile $547,651

5 Mile $460,971

MAJOR TENANT INFORMATION

FLASHBACK DINER

SF Occupied 7,615

Lease End Date July 2019

AMENITIES

 Signage  Monument Signage

TRAFFIC

Collection Street: N Federal Hwy

Cross Street NE 15th Ter, SW

Traffic Vol 34,622

Year 2018

Distance 0.14 mi

Collection Street: NE 5th Ave

Cross Street NE 16th St, N

Traffic Vol 6,578

Year 2018

Distance 0.18 mi

Collection Street: Glades Rd

Cross Street N Federal Hwy, E

Traffic Vol 22,699

Year 2018

Distance 0.24 mi

Collection Street: Glades Rd

Cross Street N Federal Hwy, E

Traffic Vol 22,744

Year 2018

Distance 0.28 mi

Collection Street: NE 20th St

Cross Street NE 4th Way, NE

Traffic Vol 15,308

Year 2018

Distance 0.28 mi

PUBLIC TRANSPORTATION

COMMUTER RAIL

Boca Raton Commuter Rail (Tri-County

Commuter)

Drive 9 min

Distance 4.1 mi

Deerfield Beach Commuter Rail (Tri-County

Commuter)

Drive 13 min

Distance 5.5 mi

AIRPORT

Palm Beach International Airport

Drive 37 min

Distance 25.7 mi

Fort Lauderdale–Hollywood International

Airport

Drive 38 min

Distance 26.7 mi

WALK SCORE ®

85

Very Walkable

TRANSIT SCORE ®