This career progression briefing explains the process of negotiation and the skills you can practice to develop your approach. It is based on the ICAEW Career Empowerment webinar presented by accountingcpd’s Alan Nelson, Negotiating in Finance: 5 Secrets of Success.
Negotiating in Finance CAREER PROGRESSION BRIEFING This career progression briefing explains the process of negotiation and the skills you can practice to develop your approach. It is based on the ICAEW Career Empowerment webinar presented by accountingcpd’s Alan Nelson, Negotiating in Finance: 5 Secrets of Success.
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Contents List
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Negotiation in Finance
Common Misconceptions
STEP 1: Understand the purpose
Skills and behaviours that will get you to win-win
STEP 2: Understand the process Trading concessions – use of the word “if”
10 12 14 16 18
STEP 3: Understand the dynamics
Dealing with red, blue and purple negotiators
STEP 4: Plan to succeed
STEP 5: Reaching agreement
Summary
Negotiation in Finance
Accountants engage in negotiation as they go about their daily work. They’ll negotiate with clients over audit deliverables, with their stakeholders in a business over how much time they have to produce month-end reports, or as part of the process of budget setting.
An auditor will negotiate the trickier parts of an audit position, attempting to get a client to accept an important, but perhaps inconvenient, adjustment to the numbers - an impairment here, an extra provision there. A management accountant would negotiate budgets with managers all over the organisation, as they negotiate the politics of annual budgeting. A credit controller will negotiate with customers to try to reduce the number of days it takes them to pay. Accountants negotiate all the time – so much so that they sometimes don’t notice they are doing it.
Here are some examples that most accountants will recognise:
Finance Directors and CFOs might be involved in negotiating terms with major supply chain partners or customers as part of a multi-functional team. These can be large multi-faceted negotiations that take months to complete and are revisited over the years. A treasury professional will negotiate with banks and other sources of finance to ensure adequate funding for business activities.
NEGOTIATING IN FINANCE | NEGOTIATION IN FINANCE
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Common Misconceptions
There are some common misconceptions about negotiations that are pretty unhelpful: It all comes down to price Price is often one of the elements of a negotiation, but it is generally not the only factor, and frequently not the most important. It’s for sales people You may connect negotiation with the world of selling. It’s true, people who sell do negotiate, but so does everyone else, particularly finance teams. It’s all about winners and losers Many books and a lot of courses perpe- trate the idea that negotiation is all about being more aggressive and macho than the other party. Most negotiations aren’t
like that. The two parties need to be able to work together over a long period of time. A short-term win that leaves the other party resentful is likely to backfire. The involvement of accountants in negotiations can itself be something of an anti-dote to these unhelpful attitudes. Finance people have some traits that are particularly well-suited to negotiations: They know the numbers
They deal with these things calmly They have attention to detail when presented with a problem They tend to do their homework
All of these things are really good qualities for a negotiator, because they help you to be better equipped than the person that you’re negotiating with.
NEGOTIATING IN FINANCE | COMMON MISCONCEPTIONS
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STEP 1: Understand the purpose
Very few of the negotiations you will have as an accountant will involve one-off situations with someone you won’t have to have an ongoing business relationship with. So, if you go stomping around engaging in the sort of negotiations you see on business-based reality TV shows, you will quickly find yourself pretty isolated. Although it’s not ideal to get what you want at the expense of giving too much away in a negotiation, you also don’t want to make the other person feel unhappy with what they get in return - this could damage your relationship. People have long memories. A win in the short term can come back to bite you later. In any negotiation, your goal should be to work with the other party to reach a solution which works for everybody. It may sound simple, but a successful negotiation will mean that both of you are happy with the outcome.
This is called a win-win outcome, and this briefing is based on the assumption that that is what we are aiming to achieve in a negotiation. Think your way through the other possible outcomes and you will quickly see that they are less desirable. An outcome where you both feel you have lost is clearly not good for anyone. An outcome where you feel you have lost and they have won will not make you happy or impress your colleagues. An outcome where you win, and they feel they have lost, may make you look or feel good in the short-term, but it might create resentment and undermine a longer term relationship. Successful negotiation will mean that both of you are happy with the outcome. This is called a win-win outcome.
NEGOTIATING IN FINANCE | STEP 1: UNDERSTAND THE PURPOSE
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Skills and behaviours that will get you to win-win
Many people think that you are either good at negotiation or you are not - as though it is a talent you are born with. But, in fact, there are some simple skills and behaviours you can learn and develop that will make you more successful. Here are 4 behaviours you can adopt, which will soon become habits you hardly think about: ATTENTION TO DETAIL Do your homework. Think about what is difficult for you and for the other side. Take notes. It keeps you in control, and creates a record of what was agreed. FLEXIBILITY Be prepared to react to the ebb and flow of the conversation, without losing sight of your key objectives. SUMMARISING Summarise and confirm what is being agreed. It reinforces the progress you have made, avoids misunderstandings and provides positive reinforcement.
CONFIDENCE Become a confident negotiator who aims high and achieves better outcomes. by thinking through the process and the concessions that may be required. And here are 3 skills you can work on: SPEAKING You must be able to articulate clearly and simply what you want and explain why. Don’t be aggressive. Don’t give offence. But do be clear and have conviction. Emphasise why you need something – it’s harder for them to say no. QUESTIONING Ask questions. Only by finding out what they care about can you position what you want. LISTENING Leave space. Don’t interrupt. Make sure you understand.
NEGOTIATING IN FINANCE | SKILLS AND BEHAVIOURS THAT WILL GET YOU TO WIN-WIN
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STEP 2: Understand the process
At the start of a negotiation, each party has a position – they know what they want. As they discuss their various concerns, they make concessions on different points in order to reach agreement with the other party. For each concession, they will expect something in return. This trading of concessions is the process of negotiation. There are two different types of concession, and it is critical that we understand the difference: CONSTANTS A constant is something that has a fixed value that is apparent to both parties. The most obvious example of a constant is price. If one person gains on price, the other person must, by definition, lose.
VARIABLES A variable is something that is of greater value to one party than the other. These can be harder to spot but there are often lots of them in a negotiation. Examples might include providing guarantees, agreeing to a deadline, or delivering at a particular time of day. Any of these might be important to the other party, but easy for you agree to. Often variables are given away for nothing, as people haven’t realised their value to the other party. So, identifying and understanding the variables in a negotiation is key to success. In fact, you sometimes find out that things you hadn’t thought were important, are more significant to the other party than something as obvious as price.
NEGOTIATING IN FINANCE | STEP 2: UNDERSTAND THE PROCESS
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Trading concessions – use of the word “if”
When we’re looking to make concessions, we should always try to get something in return. The best way to achieve this is by using the magic word, “if”. All concessions should be conditional. In the heat of a negotiation, try to hold on to a couple of key phrases that include the
“If we can get you the complete list of audit deliverables earlier, and in the format you requested, would you be able to look again at your projected audit fee increase?” Trading concessions is very important in reaching a win-win situation. And the word “if” is very important in trading concessions. Writing “if” statements is a good way to prepare for a negotiation. It can be hard to invent these statements in the middle of a negotiation, so having them ready and to hand can give you a big advantage.
word “if”, which will help you to successfully trade concessions. Here are some examples of “if statements”:
“If I could get the budget report to you by the first Tuesday of the month, would you be able to send over any changes to me the next day so that I can circulate it on the Wednesday?” “I might be able to give you a few more days to pay, if you could sort out the EDI issues at your end.”
NEGOTIATING IN FINANCE | TRADING CONCESSIONS – USE OF THE WORD “IF”
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STEP 3: Understand the dynamics
Blue negotiators Concerned with building a relationship more than winning. They tend to: See every negotiation in a long-term context Seek to succeed by co-operation Believe that more for you can mean more for them as well
Different people have different styles of negotiation. Recognising and understanding that is key to understanding the dynamics of a negotiation. It is helpful to place different negotiators on a scale, with confrontational “red” negotiators at one end, and consensual “blue” negotiators at the other. Let’s take a look at these main styles of negotiation in more detail: Red negotiators Concerned with winning more than on building a relationship. They tend to: Treat every negotiation as a short- term contest Believe that more for them means less for you Try to dominate in order to win Try to get something for nothing Use manipulative ploys, brinkmanship, dirty tricks and coercion
Avoid manipulative techniques Will only trade something for something
NEGOTIATING IN FINANCE | STEP 3: UNDERSTAND THE DYNAMICS
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Then, in the middle of our scale we have our purple negotiators. Purple negotiators They take the middle path between red and blue negotiators’ attitudes. They tend to: Be the easiest of the three styles to deal with
Which type of negotiator are you? And what was the dynamic of your last negotiation?
Be open to both giving and taking – the essence of successful negotiation Be open to tit-for-tat strategies Behave in a consistent way
NEGOTIATING IN FINANCE | DEALING WITH RED, BLUE AND PURPLE NEGOTIATORS
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Dealing with red, blue and purple negotiators Dealing with a blue negotiator
You will need to vary your own negotiating style depending on who you are dealing with. Let’s look at them each in turn. Dealing with a red negotiator If you are dealing with a hyper-competitive red negotiator, who wants to win, if necessary at your expense, the temptation is to toughen up and mirror their approach, but in fact that can simply mean you end up butting heads and getting nowhere. So here are some tips for dealing with a red negotiator: Take a cool but firm tone Use respectful negotiating manners Have patience in terms of the speed of the process Don’t get emotional – try to be analytical Rely on listening skills to gather information Develop possible areas of agreement
If you are dealing with a blue negotiator, remember to focus on finding a win-win. Here are some tips for dealing with a blue negotiator: Be a bit more assertive than you’re normally comfortable with Take control of the agenda Summarise and confirm where you’ve got to in the conversation Record the progress you make and the things you agree Write up what’s agreed and confirm it back afterwards
NEGOTIATING IN FINANCE | STEP 3: UNDERSTAND THE DYNAMICS
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Dealing with a purple negotiator should be easier than either red or blue. But as you proceed be on the look-out for things drifting towards blue issue or red ones and use the techniques listed above to get things back on track. Bear in mind also that different styles of negotiating are useful in different circumstances. In a one-off situation, where you are dealing with someone you do not expect to meet again, being a bit more “red” might be appropriate. Different styles of negotiating are useful in different circumstances.
Be careful, though. It’s a small world - you may unexpectedly come across this person again! If, on the other hand, you are a negotiating a raise in your fees with a client, maintaining a positive working relationship may be more important than the increase in fees. The best outcome would be for your client to understand the reason behind the increase and agree to it willingly, but you are unlikely to get that by being aggressive. So, you need to adapt your negotiation style depending on the situation.
NEGOTIATING IN FINANCE | DEALING WITH RED, BLUE AND PURPLE NEGOTIATORS
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STEP 4: Plan to succeed
The key to successful negotiation is planning. The more thoroughly you think through in advance how you are going to handle a situation, the more likely you are to get what you want without upsetting the other person. Preparing for a negotiation will also increase your confidence and enable you to stay in control if talks don’t go in the direction you had hoped they would. When planning to negotiate, there are some simple questions to ask yourself: What do I want? What do I think the other person wants? In what ways would I be prepared to compromise? In what ways do I think the other person would be prepared to compromise?
How do I think the other person might react to my position? For each possible reaction, what will I say or do? What would a win-win situation be? In addition to asking the questions above, there are a range of useful tools and techniques you can use to help you prepare for a negotiation. The more thoroughly you think through in advance how you are going to handle a situation, the more likely you are to get what you want without upsetting the other person.
NEGOTIATING IN FINANCE | DEALING WITH RED, BLUE AND PURPLE NEGOTIATORS
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Negotiating style Be aware of your own negotiation style and then think about the likely style of the other party. Taking into account the balance of power in your negotiating situation, consider how you might best adapt your own approach for success. Constants and variables Ensure you understand what is most valuable to you and/or your company. What will you be negotiating about? Numbers, money, sales, time, conditions, discounts, resources or something else? What will you expect to get in return for any concessions you give? Think particularly about variables. What do you have or could you do that would be valuable to the other party but not costly to you? negotiation, think through the range of possible outcomes. If you know your extremes and understand your limits, you can work towards discovering where they overlap with those of the person you are negotiating with. Try to be realistic about the range of outcomes the other party will be considering. Range of outcomes For each of the main issues in a
Win/lose matrix Think about your objectives and how they benefit the other party - where is the incentive/reward for them? What outcomes (for both parties) might result in a win-win situation? What would be a lose- lose situation? Decision tree Create a decision-tree plan based on a realistic range of outcomes, then think about what you will do if each outcome is discussed. Have a plan for the outcomes you don’t want, as well as those that you do. Checklist It is useful to have a checklist to work through to ensure that you have considered all the different aspects of your negotiation before you get started. Think about factors such as goals, power, trading, consequences, etc.
NEGOTIATING IN FINANCE | STEP 4: PLAN TO SUCCEED
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STEP 5: Reaching agreement
Check the meaning Make sure you carefully check the meaning of each specific agreement at the end of the negotiation, so that both parties are perfectly clear on how you are going to proceed. For example, if you are an accountant who has just secured a new piece of business for your firm, by negotiating an introductory fixed rate of £1,500, you need to make sure you and the client have the numbers exactly right! Is that £1,500 per month, per year, per minute? Does it include VAT? How long does the introductory offer last for? Do they need to sign up for longer than that period to secure the deal? You don’t want the agreement to unravel because of a misunderstanding over a detail.
It is tempting to want to make a final decision on each small issue as you progress through a negotiation. This is attractive in theory, but in practice it can make it hard to reach an overall agreement. It’s also important to remember that the negotiation isn’t over just because you have come to an agreement. You will need to follow up with the other party. So, here are our tips for reaching a final agreement and following up: Think of the bigger picture As you progress through the negotiation, make it clear to the other party that any agreement made on a specific issue is conditional, based on the shape of the full package. You don’t want them to cherry pick things you have agreed
NEGOTIATING IN FINANCE | STEP 4: PLAN TO SUCCEED
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Get it in writing Have you ever been in a negotiation where you have come away excited about what you have achieved and what has been agreed, only to find that once you go back to discuss the finer details, the agreement wasn’t quite what you thought it was? It is important that once you have reached a decision in a negotiation, you get it down in writing. Remember, the devil is in the detail. This is particularly significant if one party decides to retract any part of the agreement, as you can then present them with the facts and what they agreed to in writing, rather than just having a conversation that is likely to result in conflict. It is important that once you have reached a decision in a negotiation, you get it down in writing.
Follow through After you’ve reached agreement, it’s important that you reinforce that by following through on what you said you would do. The basic rule is: be professional about the way that you conclude the proceedings. Agreements For a big negotiation, you may need to draw up a contract. Make sure it reflects what you have agreed. Surprises can undermine trust. For smaller agreements a follow-up email can be enough to confirm things.
NEGOTIATING IN FINANCE | STEP 5: REACHING AGREEMENT
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Summary
Step 1 Understand the purpose of negotiation So here are the 5 secrets once again:
This document has laid out the five secrets of successful negotiation. They are not rocket science and they should be easy for you to follow whether or not you see yourself as a natural negotiator. And that’s important because, as we have seen, accountants negotiate all the time.
Step 2 Understand the process of negotiation
Step 3 Understand the dynamics of negotiations
Step 4 Plan to succeed
Step 5 Reaching agreement
NEGOTIATING IN FINANCE | BLANK
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About the author
In 2000, he co-founded Nelson Croom, the publisher of accountingcpd.net which he has run ever since. He has a track record of publishing educational material for accountants, including some of Europe’s leading textbooks. Alan was, for 9 years, Chair of ICAEW’s Practice Assurance Committee. He has recently been appointed Chair of ICAEW’s Tribunals Committee. He was a member of ACCA’s SME Committee and of IFA’s Regulatory Committee. He is currently a member of the Bank of England’s Decision Making Panel.
This technical briefing was written by Alan Nelson, Founder and Managing Director of accountingcpd. It is based on his online accountingcpd course, Negotiation Skills for Accountants , and accompanies the ICAEW webinar, Negotiating in Finance: 5 Secrets of Success. Alan started out as an accountant, and opted for a career in business, quickly rising to become CEO of Thomson Learning, a leading college textbook publisher.
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