Recognizing a Bad Business Deal.

Many people assume that entrepreneurs are in the business of overselling their portfolio, but the truth is that those who succeed spend time substantiating their skillset and worth. The real dangers are often felt by those just looking to make it in a tough industry, especially those that hope to strike out on their own. Even top entrepreneurial television programs like Dragon’s Den or Shark Tank showcase how even the most prudent investors always look to get the better side of the deal. Of course, this is just good business, but when you’re not as experienced as you could be, it’s easy to fall into these difficult traps.

For this reason, sniffing out a bad business deal is an essential skill set for any entrepreneur to build. This way, they can avoid underselling their expertise, skills and personal products, and they’ll have the courage to stand by their convictions. But this is more than a platitude, it’s an actional set of steps you can take to benefit your potential future and understand the concept of true market value. 

In this post, we’ll discuss how to achieve that and more:

Understand Your Worth

This is quite a simple and obvious point, but it’s essential to make. You cannot properly enter a deal if you’re unsure of what worth you have. This goes for everything, from negotiating a new salary at a job, to negotiating a percentage of your business in exchange for angel investment.

Where do you see your business or enterprise going? Do you have other opportunities? How unique is your idea? Do you have a robust backbone for your planning, such as a strong patent allowing a particular item to be legally yours for a set amount of time? Remember that waiting for a better deal is infinitely better than quickly entering into a bad one.

Moreover, consider the full worth, not just the monetary value, of joining a partnership with another individual or enterprise. It might be that the ability to partner with a major player in your field can bring you all of the goodwill and brand recognition that comes along with it, even if they’re offering slightly less compensation than another brand vying for the deal. Appraise your worth, and you’ll be able to see where you fit.

Fully Vet Your Partner

When you have something to offer, people can promise you the world for it. This isn’t only true in business, but relationships, or even someone just trying to sell you their second-hard car. For this reason, it’s essential to consider the authenticity and integrity of the person you’re about to work with, so you can thoroughly prove who they are.

This might involve looking at past testimonials, the fates of past business partners, customers and employee goodwill, and their experience in working with brands like yours in the past. Dive into those case studies, and remember, if red flags pop up now, they almost certainly will when you’re trying to navigate your partnership.

If It’s Too Good To Be True, It Is

This is a point that cannot be repeated ad nauseam, because the truth of its warning is too relevant to ignore. Always consider what the possible partner wishes from the deal, and how they might expand their value.

For example, sometimes it’s good to ask for more than you were expecting, because when they try to negotiate you down from that level, you can rest on a figure that you were happy to achieve anyway. Always be very mindful of those who promise you goodwill, or a freebie, or don’t negotiate with you in any way. While a good deal is not necessarily a sign that something is wrong, it’s best not to hope for that, but to make certain of it.

Read The Fine Print & Consider Timing

It’s always important to read every single piece of print you’re signing off on. Read, re-read, and read again. Make sure you understand what each point implies and demands of you, and for how long. Agree to all the potential implications of it, and if you’re unsure, ask, and get that in writing.

It’s also good to consider the timing of the deal. A good deal now might not be a good deal tomorrow, and a bad deal today could be a good deal later on. How long are you bound to the contract? Does the contract change after a little while, and if so, are the new terms acceptable? Are you tied to variables, like the contract diminishing if performance is under a certain threshold? Consider all of this, and the implications for the future, as well as any exit clauses you may have. If something feels off, it probably is. Make sure you have a consultant and legal professional look through the contract before singing off on it.

With this advice, you’re sure to sniff out a bad business deal before you trap yourself in one.