Small businesses have limited resources and every decision is crucial. You need to know when to jump on an opportunity and when it's too good to be true. And no one knows how to do this better than uber businessman Warren Buffett.
In the book "How To Close A Deal Like Warren Buffett," authors Tom Searcy and Henry Devries examine Buffett's decision-making traits to see what he looks for when closing deals.
"Warren is famous for doing enormous deals with as little information as a few pages of business plans and the standard financials that a company would submit to a bank in order to qualify for a loan,” Searcy and Devries write, adding that business leaders can use this set of principles and effective strategies to gain "explosive, major growth" for their own businesses. Here are four ways to follow Buffett’s lead when it comes to closing deals for your own company.
1. Know the Other Guy’s Money
If you want to understand how beneficial the deal will be for you, you need to know exactly who you’re dealing with. This means knowing everything about their financial situation, including how they make their money and how they spend it. These numbers are “critical to discussing the possibilities of working together,” Seacy and Devries write.
You need to know more than the other party’s budget. “Start with the understanding of ‘why’ a deal makes sense to your prospect," they explain. "Once you know your prospect’s biggest problems, you’ll need to find your biggest solution to match.”
Business owners should also be careful when doing this research. Don’t just rely on what everyone else thinks is true and accept a value just because it’s a widely accepted number. Instead, you should do the research on your own and understand the numbers and what they actually mean when compared to an entire industry.
2. Start Discussing Money From the Beginning
It can be uncomfortable to talk about money at the beginning of a relationship, but you need to discuss this early on.
In Buffett’s book “The Essays of Warren Buffett,” he wrote that entrepreneurs need to be clear about the money from the beginning because “[they] don’t want to waste [their] time or that of the [other party’s time] by talking, even preliminarily, about a transaction when price is unknown.”
3. Use Ranges to Qualify and Disqualify
When you speak in terms of money, use ranges of prices, cost structures, yields and performance so you can have an understanding of the lowest and highest numbers each party is willing to accommodate.
If you don’t do this, you may end up “finding yourselves so far apart that permanent damage has been done to the relationship,” Seacy and Devries write.
4. Don’t Negotiate Until it’s Time
You should work out each particular point of a deal one at a time. You shouldn’t try to tackle the entire deal in one meeting. And you should never try to negotiate before understanding the rest of the details.
Before you get to this point, don’t try to negotiate, because this basically means you’re trying to “reduce the little parts before the shared picture of the whole has been established,” Seacy and Devries write.
Read more articles about the art of negotiation.
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