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6 Financial Facts You Need to Know Before Contract Negotiations

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No matter what kind of contract you’re negotiating, finances are probably a major component. You need to specify the terms, amount, and method of payment, as well as the financial obligations of each party. It’s essential that this information be thoroughly reviewed for accuracy before each party signs the contract, too — any information that’s incorrect could invalidate the contract. Managing the finances of a small business can be difficult, though — especially if you’re a new business owner. Find out what financial figures you need to know — and how to ensure they’re accurate — before you enter contract negotiations.

Understand Your Business’s Finances

1. Know your daily cash flow. One of the most important financial facts about your business is its daily cash flow. Cash flow is defined as the gross sum of both incoming and outgoing payments, and this figure is sometimes also referred to as a business’s general “liquidity.” The best way to accurately determine this number is to consult your business accounting software. It should allow you to manage your finances and get a real-time look at daily cash flow.

2. Have a balance sheet ready. When you’re entering contract negotiations, it’s also important to have an overview of your business’s debts and assets readily available. Even if you don’t expect that the contract will call for this information, you should have it ready. A balance sheet can give you a single, simple overview of this information.

3. Understand your financial health. Perhaps the most important financial information is the general financial well-being of your company. If you’re facing enormous debt or are otherwise financially encumbered, these are important factors to take into consideration during contract negotiations.

Understand Your Contractor’s Financial Expectations

4. Specify terms of payment. You aren’t the only party who needs to bring financial data to the table in contract negotiations. The contractor you’re negotiating with should be prepared with their own information, too, including specific figures regarding expected payment. This figure should include a breakdown of the cost of each individual component of service.

5. Ensure you get a fair rate. When you’re discussing the other party’s financial expectations, it’s a good idea to ensure that you’re being quoted a fair rate. This can be difficult once negotiations have already begun, but as long as no contract is signed, you can still seek out estimates and quotes from other potential contractors.

6. Verify the contractor’s funding. Finally, when a contractor proposes a rate for services, it’s important to verify that they will have the funding necessary to provide those services. Clarify whether payment is required before or after completion, too, before you agree to the contract in question. This can ensure that you are on the same page as the other party, thus preventing any disputes.

Ensure Your Contract Contains Accurate Financial Data

According to research, only 36% of businesses stick to their financial projections. This can be attributed to many factors, but one of the most likely culprits is an inefficient accounting system. When you invest in a comprehensive, all-in-one platform, you can bill clients, make payments, and track your daily cash flow. Your cash flow is an important figure to be familiar with as you negotiate contracts, so you should ensure that you have an accurate overview of your company’s financial health.

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