SOAP: A Lawyers Guide to Negotiation

By David Rose 

A successful lawyer has to become an expert in negotiation. We thought it was unfair to keep this knowledge to ourselves, so we’ve compiled a handy list of negotiation techniques into SOAP. A good lawyer uses SOAP every day, which is why people think we’re slippery.

Silence

The Four Seasons said it best: ‘silence is golden’. People hate silence and they’ll do anything to fill it, even if that’s not in their best interest. This explains the music of Nickleback. A deliberate silence now and then can help you squeeze extra concessions from your counterparty or gain leverage on a price point.

Beware, though: when using silence in a negotiation, you’ll need a good poker face. Being quiet is only useful if you’re comfortable with being quiet. If you’re as uncomfortable as the person across the table, you won’t get anything from silence other than a large amount of flop sweat.

Outcome

Before you enter a negotiation, take the time to think about your ideal outcome. What would you like to come out of your discussion? What would the other party like? What can you work on together? All too often, people turn up at the negotiating table with no firm idea of what they actually want. This inevitably leads to conflict. It’s like playing water polo with somebody who can’t swim. Sure, it’s fun to watch, but it seems like a waste of time and those floaties aren’t fooling anybody.

Acceptance 

Many lawyers will warn you not to say things like “this is my final offer”. Giving yourself an ultimatum limits your ability to negotiate properly. Remember to be flexible. This doesn’t mean that you have to give up completely, but you should be prepared to make concessions. Sometimes the best way forward to take a few steps backwards. We read that in a fortune cookie once.

Pressure

Don’t put too much pressure on people. Anybody who’s ever been on a date knows that pressure can kill the mood. Sometimes a gentle touch can be just as effective as an aggressive browbeating. It’s important to remember that the person you’re dealing with is… well, a person. They often want the best outcome just as much as you do. If you’re sensitive to their needs, who knows? You might get lucky. Maybe you’ll move in together! (The dating analogy breaks down at a certain point).

So, there you have it. Get out there and start negotiating. Sometimes the best way forward is to use SOAP. (That one also came from a fortune cookie.)

How franchise buyers can avoid disputes

When buying a business from an existing franchisee, there are some things you can do to minimise the risk of a dispute arising with the seller:

Homework

 

Do your homework on the franchise system and your ability to finance the purchase. If you believe that the business is overvalued, then negotiate. You’ll often lose your ability to change the price once the business sale contract is signed. Sometimes it’s difficult to work out what you want to pay for the business if the seller won’t give you all the financial information. Sellers can be reluctant to give out too much information until you sign the contract. If you’re not comfortable to proceed until you receive this information, then offer to sign a confidentiality and non-disclosure agreement. This will give the seller the comfort that you won’t misuse their information.

 

Read everything

 

The seller or their business broker will generally prepare the contract. Read the contract thoroughly and have it reviewed by your lawyer before you sign it. Contracts are legally binding and cover the entire agreement between you and the seller. It’s critical to ensure that the contract clearly sets out your respective rights and obligations, along with everything you’re expecting as part of the purchase. Disputes can arise if the contract is silent or ambiguous about something.

 

Remember that contracts are always up for negotiation. You should ensure the following things are addressed:

 

-       Is stock-in-trade included within the purchase price, or do you need to pay extra for it?

 

-       Who’s liable to pay the franchisor’s costs (such as the transfer/assignment fee, training fee and their legal costs)? If there’s a lease involved, who’s liable to pay the landlord’s costs?

 

-       Ensure the contract is subject to you being satisfied with your due diligence enquiries into the business, the franchise agreement and any lease. Without a contractual right to exit the transaction if you’re not satisfied with these things, you’ll face a costly problem if you choose not to proceed.

 

-       There should be a detailed list of the plant and equipment included in the purchase price. If any equipment is leased or financed, who’ll be responsible for paying out the leases? Likewise, if any equipment is hired, will you be taking on the hire agreements?

 

-       What licences need to be transferred for you to operate the business? These might include food and liquor licences.

 

-       If the contract doesn’t proceed, will your deposit be refundable? You’ll want a clear entitlement to receive a full refund of your deposit if due diligence or any of the other contractual conditions are not satisfied.

 

Diarise dates

 

Once the contract is signed, diarise the key dates. Time is of the essence in most Australian jurisdictions. This means if there’s a due date, the deadline must be met, otherwise there will be consequences. For example, failing to satisfy due diligence may mean that you are taken to have accepted due diligence. Sellers are not obliged to grant extensions if you need more time, therefore ensure from the outset that the timeframes are achievable.

 

Due diligence

 

Thoroughly carry out all your due diligence enquiries within the contractual timeframe. This should include satisfying yourself with the financial position of the business and the condition of the premises, plant and equipment. Buyers will generally need to take the assets of the business in an as-is condition. If you confirm you’re satisfied with due diligence but then wait to raise issues until afterwards, you may lose your leverage to have the seller rectify the issues.

 

Transparency

 

Be transparent with the franchisor in a timely manner. You’ll usually go through the franchisor’s standard interview and induction process. Remember that first impressions count, and this will lay the grounds for your future business relationship with the franchisor. The franchisor will ask for asset and liability statements, qualifications and work history. If you don’t comply with the franchisor’s requests, the seller could accuse you of jeopardising the sale.

 

Don’t rush

 

Only sign the franchise agreement once you’re completely satisfied that you wish to proceed. The 7 day cooling off period afforded by the Franchising Code of Conduct doesn’t apply if you’re buying an existing franchised business. Once you sign the franchise agreement then you’ll generally be bound to it.

 

Prepare

 

Work with the seller to prepare for handover and don’t assume that the seller is taking care of everything. Leaving things to the last minute can delay settlement or put you in default under the contract. Give yourself enough time to set up your EFTPOS machine with your bank and to transfer the business’ phone, electricity and other utilities.

 

In summary, clear communication and planning ahead can minimise the risk of a dispute arising.

 

 

By Luke McKavanagh and Peter Rouse, Rouse Lawyers

 

This article was previously published on the Inside Franchise Business website.

For a no-obligation, confidential discussion with our experienced team regarding all franchising matters, contact Rouse Lawyers on 07 3667 9696

How to Change Your Supply Chain – What Franchisors Should Know

Franchising is a system of doing business. As a franchisor, you have achieved a proven system for success through your brand and product consistency, and you have opted to duplicate that system by franchising.

An inherent element of franchising is that customers expect to receive identical goods and service-levels across all franchises within a franchise system. For example, an expectation that the same burger at any store in a chain will taste the same.

Successful systems often have established arrangements for the supply of products, ingredients or services to all franchisees within a network. Most franchisors will require their franchisees to only source products from a nominated or approved supplier.

Franchisors will often secure special wholesale rates with their suppliers, resulting in cost savings to franchisees. Using a single or select few suppliers ensures consistency.

Just like any business owner, franchisors must ensure that supply arrangements continue to remain beneficial to the system. Changes in the marketplace or the introduction of new suppliers offering competitive rates may prompt franchisors to consider changing their nominated supplier.

If you’re considering changing your supply chain, then there are a few key things you should consider:

9 tips for changing your supply chain

1. Due diligence

Due diligence enquiries into the prospective new supplier. Do they have the capacity to fulfil the needs of your entire franchise network and deliver a standard of consistency in both product and service comparable or better than your current supplier? Can you leverage the existence of this new supplier to negotiate a better deal with your current supplier?

2. Exit rights

Do you have a formal supply agreement with your existing supplier? If so, what rights do you have to exit the agreement? You don’t want to place yourself in breach of your contractual obligations to your existing supplier by engaging with a competitor.

3. Franchisee obligations

 Check your existing franchise agreements and disclosure documents for any specific obligations you may have to franchisees. Most franchise agreements will generally give franchisors flexibility to change suppliers at their discretion.

However, sometimes there are guidelines that must be followed, such as giving a certain period of notice to franchisees regarding the change, or only implementing a change if a majority of franchisees agree.

4. Are benefits real?

What are the benefits of changing the supplier? If it’s solely a monetary benefit for the franchisor and will diminish the profitability of franchisees, then franchisees could allege you are breaching the Franchising Code of Conduct by acting in bad faith. If the new supply arrangements prevent franchisees from making a profit, they could also accuse you of acting unconscionably.

5.  Communicating to franchise network

How will you communicate the change to your franchise network? Franchisors must ensure that any proposed supplier change is clearly communicated to franchisees with reasonable notice, along with full details on why the change is being proposed and what the benefit will be. Be prepared to justify your decision and communicate your proposal in a positive way.

Franchisees will also need a grace period to run down any current stock they have at hand before they begin purchasing from a new supplier.

6.  Third line forcing

Speak to your lawyer about whether the change could constitute third line forcing.

Third line forcing is a form of exclusive dealing, where a business will only supply goods or services, or give a particular price or discount, on the condition that a person buys the goods or services from a nominated third party.

If the person does not comply with the condition, then the business will refuse to supply the goods or services. If this conduct has the effect or likely effect of substantially lessening competition in the marketplace, then a notification must be lodged with the ACCC before engaging in the conduct.

While the laws on third line forcing were loosened on 6 November 2017, the ACCC will continue to tightly monitor any actions which may infringe anti-competition laws.

7. Updating information

Update your approved supplier list, which will often be contained in your franchise system’s operations manual. The updated manual should then be provided to all franchisees.

8. Disclosure

If you’ll be receiving a rebate from a supplier, ensure that this is disclosed in Item 10.1(j) of your disclosure document. Rebates can help to supplement a franchisor’s head office costs and reduce the fees you would otherwise need to charge franchisees.

9. Finally, have a backup plan.

As KFC’s recent chicken-shortage debacle in the UK has shown, changing suppliers can have drastic effects on a franchise system. KFC’s new supplier was unable to supply enough chicken to franchisees, resulting in the temporary, and somewhat embarrassing, closure of many stores. Fortunately, KFC saw the humour and irony in the situation, apologising to its customers on social media with a cheeky ad.

Changing supply chains can achieve long-term benefits for an entire franchise system. By expecting the best but planning for the worst, franchisors can minimise disruptions and ensure a smooth transition.

This Article was previously published on the Inside Franchise Business website.

For a no-obligation, confidential discussion with our experienced team regarding all franchising matters, contact Rouse Lawyers on 07 3667 9696