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Business Deal

A mutual agreement or communication between two parties who want to do business

What is a Business Deal?

A business deal refers to a mutual agreement or communication between two parties who want to do business. The deal is usually carried out between a seller and a buyer to exchange items of value such as goods, services, information, and money. It is considered to be completed or finalized if two or more parties reach an agreement on the terms and conditions of the deal.


Business Deal


Both parties must sit together and decide on the terms and conditions that they may deem essential to protect their interest and rights. They then both sign on the papers formally and finally conclude the deal.


Advantages of a Business Deal

A business deal offers the following advantages:

  1. It enables organizations to share, as well as pool their resources, thus ensuring that there is better utilization of the resources.
  2. It helps an organization to plug any loopholes that may exist.
  3. Organizations are able to place more focus on their core competencies without worrying about other noncore jobs that must be completed.
  4. When a company wants to expand its business and enter another territory, deals with other native organizations will help the company to not only know the place better but also get conversant with the existing culture.


Disadvantages of a Business Deal

Along with its benefits, a business deal also comes with a few disadvantages:

  1. Most of the times, a deal becomes disadvantageous to both parties when they fail to honor the terms of the deal and be forced to drag themselves into a courtroom. It can lead to the parties facing bitter tensions and loss of capital and resources for both organizations.
  2. Another disadvantage companies may face in a deal is the possibility of backward integration. In some instances, a company that is lacking certain knowhow may enter into a business deal and then make use of that deal to offer training to its employees in that particular domain.


How to Negotiate a Business Deal?

To ensure the success of a business deal, take note of the following tips:


1. Get the right people/main decision-makers to the table

Before you start negotiating any deal, you need to have the right people present. To reach a settlement, it is crucial that the ultimate decision-makers are present. Before the commencement of the negotiation, make sure that the other party is also fully authorized to make binding commitments.

It is to avoid finding yourself in a situation where you believe you have struck a deal with the other party, only to realize that your agreement needs to be approved by someone higher in the chain of command.


2. Be well prepared

Successful negotiators in a direct negotiation always ensure that they are prepared and have a plan.  For you to negotiate effectively, you need to engage fully, making use of your formidable frontal brain, skillful techniques, logic, and reason. You need to brainstorm creative approaches but avoid being tied to them to allow yourself to be able to explore the whole terrain without limiting yourself to one particular path.

Even though it is important to set your priorities and alternatives in mind, it is similarly vital to be open. You need to be open to any new information and data and weigh it impartially to determine whether it is possible to have a resolution.

Preparation also consists of building rapport with your deal counterpart. You need to take time and understand their company, organization culture, and even how they evaluate and hire employees. Getting a good understanding of who the other party is will help you assess better whether a merger or partnership is feasible (how will your personnel work together and what are the challenges that you will face?)


3. Never underestimate your risks

Even though you may be aware of your strengths, you should also give adequate weight to your risks. Objective evaluation of available risks is critical to reaching an agreement that both parties can live with. You need to put adequate energy and value into assessing your risks.


4. Focus on the key issues

When negotiating a business deal, it is important that you are aware of your key issues and focus on them so that you don’t get side-tracked. There is no need for overwhelming the other party with your skill by hitting on every plausible point. You should, however, focus on the important issues that will drive a resolution.


5. Memorialize the deal

After a verbal resolution is reached, you should record it into a short agreement form of one to two pages. You don’t need to extend the process by trying to work out every single detail. The key points should be put down since deals often die because of a lack of momentum.


Key Takeaways

A deal is an agreement between two parties (the seller and the buyer) who want to do business together by exchanging goods, services, or information for money under certain terms and conditions. A business deal comes with its fair share of advantages and disadvantages. To get the best out of a business deal, the parties involved need to put in place effective negotiation strategies.


More Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Confidential Information Memorandum
  • M&A Considerations and Implications
  • Sale and Purchase Agreement
  • Types of Due Diligence

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