One of the hardest tasks in negotiating a business deal is identifying those issues that are (or could be) “deal breakers” – the issues that so fundamentally and adversely affect the terms or risks of the deal that you should walk away. Having identified these issues, the next difficult task (and one that is just as important as identifying them) is determining how to respond. After all, if they can’t be resolved in a way that is acceptable to both parties, by their very nature these are the issues that kill the deal.
So, how do you identify deal breaker issues? First, it’s critical to understand that they can be either business or legal issues and can arise at virtually any point in the negotiations – which means it’s critical that attorney and client communicate effectively and directly. While the ultimate decision is always the client’s, the attorney must directly inform the client if he or she believes the issue is so fundamental that the client should consider walking away. Likewise, the client must communicate with the attorney if the client identifies such a risk.
While there is no single definition of “deal breaker” issues, in my opinion they’re the ones that create such a level of risk or uncertainty or so limit the upside of a deal as to be unreasonable or unacceptable. In other words, every deal should present an upside opportunity to the client in exchange for a reasonable amount of risk assumed – when this is not true, this is probably a deal that the client should walk away from. There will be other deals/opportunities – but only if you walk away from the bad ones when you should.
In my next post, I’ll discuss how to respond to these deal breaker issues – since walking away (while almost always an option) protects you from the downside but also requires that you pass on the potential upside – a strategy for survival but not for prosperity.