- Why negotiation is a legal exercise, not just a commercial one
- Prepare your walk-away points before the call
- Trade concessions around interests, not positions
- When a handshake deal becomes a binding contract
- Document the deal so the writing matches the conversation
- Negotiate the risk, not just the price
- When a lawyer earns their fee in a negotiation
- The gap between the conversation and the contract is where deals go wrong
You are about to negotiate something: a supplier contract, a lease, a customer project, a partnership, or the terms on which a co-founder comes on board. In a small business, that conversation decides more than the price. It decides your cash flow, your liability if something goes wrong, and who owns the work you produce. The principles below are the ones that matter for Australian startups and small businesses, together with the legal points that turn a good conversation into a contract you can live with.
Why negotiation is a legal exercise, not just a commercial one
The price is the part of a negotiation everyone remembers. The terms are the part that decides what happens later. Payment timing, deposits, milestones, warranties, limits on liability, termination rights and IP ownership each move risk between the parties, and a deal can look profitable at the headline number while the terms quietly make it a bad deal.
For a small business, negotiation is risk management. What you agree to shapes:
- Cash flow: payment terms, deposits and milestones decide when money actually arrives
- Risk: warranties, indemnities and liability caps decide who pays when something goes wrong
- Ownership: IP and confidentiality clauses decide who owns what you build
- Relationships: in a small market, how you negotiate affects whether the other party works with you again
- Disputes: terms that do not match the conversation are the most common source of small business disputes
Treat negotiation as a legal exercise from the start, not as a sales conversation with paperwork at the end.
Prepare your walk-away points before the call
Negotiation principles are useless without preparation. Before you join the call or meeting, write down your ideal outcome, your acceptable outcome and your walk-away points: what you would love to get, what still works for your business, and what makes the deal unsafe or unworkable.
Your non-negotiables usually come from legal and operational reality, not preference. You cannot agree to a delivery timeline you cannot meet, because late delivery can put you in breach of the very contract you are negotiating. You may need a deposit where the job requires upfront spend. You may need a cap on liability, because an uncapped indemnity can wipe out a small business over a single mistake.
Prepare for the other side as well. People trade concessions; they rarely give them away. If you can work out what the other party values, whether it is speed, certainty, flexibility, exclusivity or reduced risk, you can propose trades that get you what you need without simply discounting your price.
Have a starting point ready. A template or set of standard terms you can put on the table beats drafting from scratch in the final hour, because the party whose paper opens the conversation usually frames the issues that get discussed.
Trade concessions around interests, not positions
A position is what someone says they want: "We need a 20% discount." An interest is why they want it: "We have a fixed budget" or "We are not sure you can deliver the outcome." Negotiating at the level of positions tends to get stuck. Negotiating at the level of interests opens up options, because you can trade different things that meet the same need.
The practical rule for a small business is that every concession should buy you something. Repeated one-way concessions are the classic path to underpricing, scope creep and stressful projects. The concessions to treat carefully are:
- Price: discounts and waived fees
- Payment terms: longer time to pay, pay on completion
- Scope: extra deliverables and extra revisions
- Risk allocation: broad indemnities and unlimited liability
- Exclusivity: agreeing not to work with competitors
- IP ownership: who owns what you create
Trades that tend to work in practice include a lower price in exchange for payment upfront or milestone payments, an extra deliverable in exchange for a longer timeline, exclusivity for three months rather than twelve, and higher service levels in exchange for a minimum monthly spend. Once a trade is agreed, record it. A surprising number of disputes come from both sides believing they agreed to different extras.
When a handshake deal becomes a binding contract
Australian law does not generally require a business contract to be in writing. An oral agreement can be legally enforceable if the essential terms are agreed with sufficient certainty. The exceptions matter, though. In New South Wales, for example, s 54A of the Conveyancing Act 1919 requires a contract for the sale of land or an interest in land to be in writing and signed by the party to be charged, and other states have writing requirements for particular dealings. For most day-to-day commercial deals, a verbal agreement can bind you.
Whether a deal is binding before a formal document is signed depends on intention. The High Court set out the framework in Masters v Cameron (1954) 91 CLR 353. The parties may be immediately bound and intend the formal document merely to restate the deal in fuller form; they may be immediately bound but make performance conditional on the formal document; or they may not intend to be bound at all until the formal contract is executed. If you are still negotiating and do not want to be locked in, say so, and use language such as "subject to contract".
The negotiation itself can also create liability. Under s 18 of the Australian Consumer Law, which is Schedule 2 of the Competition and Consumer Act 2010 (Cth), it is unlawful to engage in conduct in trade or commerce that is misleading or deceptive or likely to mislead or deceive. A casual assurance in a sales call about what you can deliver can become a representation you are held to later, even if it never makes it into the written contract.
After any call in which terms were discussed, send a short written summary, an email is fine. It does not need to be a contract; it is evidence of what was agreed and it makes the next step far easier.
Document the deal so the writing matches the conversation
The deal is not finished when everyone says yes on a call. It is finished when the terms are accurately captured and executed. Treat documentation as part of the negotiation rather than an awkward afterthought.
After a call, confirm the key commercial points in writing, including scope and deliverables, price and whether it includes GST, the payment schedule and invoicing timing, timeframes and milestones, how either party can end the arrangement, and any agreed limits such as a cap on revisions or a cap on liability.
Then use the right document for the relationship. A service agreement or customer terms for client work. A shareholders agreement where co-founders and investors are coming in, to deal with ownership, decision-making, exits and disputes. Employment or contractor agreements for the people who work with you, covering confidentiality, IP and termination. A constitution for the company's basic governance rules. A template from the internet rarely reflects your commercial reality, and the more bespoke the negotiated terms, the more the contract needs to match them.
Review the other party's contract as part of the negotiation. It is common for the written version to quietly change the bargain: payment terms less favourable than discussed, extra warranties you did not agree to, automatic renewal or long lock-in periods, one-sided termination rights, or IP ownership that was never part of the conversation. Reading the contract against the conversation, clause by clause, is a normal and necessary part of the deal.
Australian law gives small businesses a backstop here. Under s 23 of the Australian Consumer Law, an unfair term in a standard form contract with a consumer or small business is void. A term is unfair if it causes a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the party advantaged by it, and would cause detriment if applied or relied on. Since 9 November 2023, proposing an unfair term in a standard form contract, or applying or relying on one, is also a contravention that carries penalties: up to $2.5 million for an individual and more for a company. The regime covers contracts where at least one party employs fewer than 100 people or had turnover under $10 million in the last income year, which captures most startups. The catch is that it applies to standard form contracts, so a genuinely negotiated, bespoke deal sits largely outside it. That is another reason to negotiate the terms properly rather than sign on the dotted line.
Negotiate the risk, not just the price
Startups and small businesses tend to fixate on the headline number. A deal can look profitable and still be risky if the terms are unbalanced. The risk areas worth negotiating over are scope creep from vague deliverables, long payment terms that strain cash flow, exposure to indirect losses, lost profits or broad indemnities that are disproportionate to the contract value, termination rights that leave you with unpaid work or stranded inventory, and giving away ownership of your background tools, templates or know-how without realising it.
If you sell goods or services to customers, the consumer guarantees in the Australian Consumer Law apply automatically and, as the ACCC explains, they cannot be taken away by anything you say or do. A term that purports to exclude, restrict or modify a consumer guarantee is void. Services must be provided with due care and skill and within a reasonable time where no timeframe is agreed. The guarantees are not only a consumer-to-business concern: they can apply to business buyers as well, for example where goods cost under $100,000. Your negotiated terms should align with your actual refund, returns and warranty processes, because the guarantees operate regardless of what the contract says.
Privacy is another variable. If you collect personal information, your contracts should reflect what you actually do with it. Under s 6D of the Privacy Act 1988 (Cth), a business with annual turnover of $3 million or less is generally outside the Australian Privacy Principles, but the exemption does not apply to everyone. It does not cover businesses that provide a health service, trade in personal information, act as credit reporting bodies or hold certain Commonwealth contracts. Do not promise customers more about how their data will be handled than you can deliver.
When a lawyer earns their fee in a negotiation
The principles above get you most of the way, but several points in a negotiation are where professional help pays for itself. A lawyer can draft the bespoke terms that protect your position: liability caps, indemnities, IP assignment, termination rights and milestone payment structures. A lawyer can review the other side's standard form contract clause by clause and tell you which terms are commercially risky, which are unenforceable and which are worth pushing back on. Where founders, shareholders and investors are involved, ownership, control and exit rights need careful structuring. And if the parties disagree about what was agreed, or a dispute has already started, advice on whether a binding deal exists and what the next step is can save you a far larger cost later.
If you are heading into a negotiation that will shape your business, that is the point at which advice is cheapest. At Artificer Legal we help startups and small businesses across Australia negotiate and document their deals, and we can review a contract before you sign it. This article is general information only and is not legal advice.
The gap between the conversation and the contract is where deals go wrong
The most expensive mistake in a small business negotiation is rarely conceding on price. It is walking away from the table believing the deal is done, and only reading the other party's contract later, when the written version has quietly replaced the conversation. Treat the written terms as the final round of the negotiation, not the paperwork after it, and you protect your cash flow, your liability and your ownership in a single step.
To summarise: prepare around your walk-away points before you start; trade concessions for something in return; know that a handshake deal can bind you, so use "subject to contract" while you are still negotiating; confirm the terms in writing after every call; review the other party's contract as part of the deal; and remember that consumer guarantees, privacy obligations and the unfair contract terms law set limits on what you can agree to, even in a standard form contract.