Establish and conduct
business relationships
SITXMGT002
Establish and conduct business relationships
Application
This unit describes the performance outcomes, skills and knowledge required to
establish and manage positive business relationships. It requires the ability to use
high-level communication and relationship building skills to conduct formal
negotiations and make commercially significant business-to-business agreements.
The unit applies to all industry sectors, and to individuals who take responsibility for
making decisions about purchasing or marketing activities. They also oversee the
maintenance of contracts or agreements. This could include senior operational
personnel, sales and marketing personnel, managers or owner-operators of small
businesses. Agreements may relate to corporate accounts, service contracts,
agency agreements, venue contracts, rate negotiations, preferred product
agreements, supply agreements and marketing agreements.
No occupational licensing, certification or specific legislative requirements apply
to this unit at the time of publication.
Pre-requisite Unit
Nil
Competency Field
Management and Leadership
Unit Sector
Cross-Sector
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Establish and conduct business relationships
Elements and Performance Criteria
ELEMENTS
(Describe the
essential
outcomes)
PERFORMANCE CRITERIA
(Performance criteria describe the performance needed to
demonstrate achievement of the element)
1.1. Establish relationships in
requirements and protocols
1. Build business
relationships
line
with
organisational
1.2. Use effective communication skills and techniques to build
business relationships
1.3. Proactively identify and take up opportunities to maintain
regular contact with customers and suppliers
2.1. Use negotiation techniques in line with professional and
organisational protocols to maximise benefits of
relationship for all parties
2. Conduct
Negotiations
2.2. Incorporate feedback and input from colleagues into
negotiation where appropriate
3. Make formal
business
agreements
2.3. Communicate results of negotiations to appropriate
colleagues
and
stakeholders
within
appropriate
timeframes
3.1. Confirm
agreements
in
writing
according
to
organisational requirements, using formal contracts where
appropriate.
3.2. Obtain approvals for all aspects of formal agreements
according to organisational procedures
3.3. Evaluate and act on the need for specialist advice as
required
4.1. Proactively seek, review, and act upon information
needed to maintain sound business relationships
4. Foster and
maintain
business
relationships
4.2. Honour
agreements within
scope
of
responsibility, complying with agreed terms
individual
4.3. Take account of agreed performance indicators
4.4. Make adjustments to agreements in consultation with
customer or supplier and share information with
appropriate colleagues
4.5. Nurture relationships through regular contact and use of
effective interpersonal and communication styles
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Establish and conduct business relationships
Table of Contents
1
Introduction ..................................................................................................... 1
2
Establishing and maintaining business relationships ................................. 3
2.1
What are business relationships ................................................................................. 3
2.1.1
2.2
Business with various groups.............................................................................................4
Customer relationships ................................................................................................ 5
2.2.1
External customer relationships .......................................................................................5
2.2.2
Internal customer relationships ........................................................................................6
2.3
Other key business relationships ................................................................................ 7
2.3.1
Business alliances ...............................................................................................................8
2.3.2
Suppliers ...............................................................................................................................8
2.3.3
Service providers ............................................................................................................. 10
2.3.4
Private contractors ......................................................................................................... 10
2.4
Forming relationships with local parties ................................................................. 11
2.4.1
Local community ............................................................................................................ 11
2.4.2
Regional councils ............................................................................................................ 12
2.4.3
Emergency services ........................................................................................................ 12
2.4.4
Tourism bodies ................................................................................................................. 12
2.4.5
Tourism trade events ...................................................................................................... 13
2.5
Professional services................................................................................................... 14
2.5.1
Financier ........................................................................................................................... 14
2.5.2
Insurance agency ........................................................................................................... 15
2.5.3
Accountant ...................................................................................................................... 15
2.5.4
Lawyer/solicitor ................................................................................................................ 17
2.6
Nurturing a relationship ............................................................................................. 17
2.6.1
3
Maintaining contact with customers and suppliers ................................................. 18
Conduct negotiations ................................................................................. 23
3.1
Stages of negotiation ................................................................................................ 23
3.2
Representing your establishment ............................................................................ 24
3.2.1
First impressions always count ...................................................................................... 24
3.2.2
Greeting ............................................................................................................................ 24
3.2.3
Dos and Don'ts................................................................................................................. 25
3.2.4
Common ground ............................................................................................................ 25
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Establish and conduct business relationships
3.2.5
During the meeting......................................................................................................... 25
3.2.6
Signs of closure ................................................................................................................ 26
3.2.7
Build on the relationship ................................................................................................ 26
3.3
Negotiation techniques ............................................................................................ 26
3.3.1
If negotiation is protracted ........................................................................................... 27
3.3.2
Negotiation with cultural backgrounds ...................................................................... 27
3.4
Negotiation principles ............................................................................................... 28
3.4.1
Base negotiations on relationships .............................................................................. 28
3.4.2
Remain open to suggestions and ideas ..................................................................... 28
3.4.3
Negotiate on substance rather than position ........................................................... 28
3.4.4
Accept the legitimacy of the other party’s position ............................................... 29
3.4.5
Separate the people from the problem .................................................................... 29
3.4.6
Use questions regularly and appropriately ................................................................ 29
3.4.7
Negotiate with a person in authority .......................................................................... 30
3.4.8
Negotiate to find a Win-Win situation ......................................................................... 30
3.4.9
Negotiate with a clear Plan B ...................................................................................... 30
4
Making formal business agreements ........................................................ 32
4.1
Types of agreements ................................................................................................. 32
4.1.1
Management agreements ........................................................................................... 32
4.1.2
Franchise agreements ................................................................................................... 33
4.1.3
Commercial property lease agreement .................................................................... 33
4.2
Nine aspects of a formal business agreement .................................................... 34
4.3
Factors affecting contracts...................................................................................... 37
4.4
Making the contract or agreement ....................................................................... 37
4.4.1
Specialist advice for making agreements ................................................................. 38
4.4.2
Information included in a contract ............................................................................. 38
4.4.3
Contract clauses ............................................................................................................. 39
4.5
5
Dispute resolution ....................................................................................................... 41
References .................................................................................................... 42
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Establish and conduct business relationships
1
Introduction
Every level of business, whether it is small, medium or well established, regardless of
whatever they are selling, one thing is very essential & most remarkable - their
business relationships. Business relationships are indispensible to the development
and on-going success of any business. It takes a dedicated amount of time and
energy to build good, strong, lasting business relationships. They are an integral
and necessary part of success. Lasting business relationships just don’t happen
and develop without a committed, consistent work. In today’s competitive
market, the most integral and primary part of success is the ability to build trust
and friendly relationships with all stakeholders. You must be willing to give and
support as much as you receive.
Your business relationship must be developed based on a qualified, selective
group of people you can count on, tap into and rely on for support, direction and
insight. Selectivity, consistency and engagement are essential for building strong
relationships and growing with them.
A business needs to maintain strong and lasting relationships with customers,
suppliers, partners, associates and advisors. Relationships must be sustained in the
interest of improving the business and staying up-to-date with the marketplace.
The development of relationships is a necessity which can be turned into an
advantage in today’s competitive market.
Customer relationships are one of the most valuable assets in the hospitality
industry. Building, nurturing, protecting and retaining them should be at the heart
of every hotelier’s strategy for growth. Customers are increasingly sophisticated
and therefore demanding, and therefore creating long lasting and successful
customer relationships and outstanding customer experiences are the most
important challenges today.
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Establish and conduct business relationships
A business must follow every avenue available to ensure success. Hospitality
businesses are dependent on developing relationships with their customers and
clients, to ensure they not only return, but will spread the word about how
fantastic their business is. An establishment cannot survive without a successful
relationship with the people who support their business, such as suppliers,
contractors, and staff.
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Establish and conduct business relationships
2
Establishing and maintaining business relationships
2.1 What are business relationships
A business relation is defined as the connections that exist between all entities that
engage in commerce. That includes the relationships between various
stakeholders in any business network, such as those between employers and
employees, employers and business partners, and all the companies a company
associates with.
A business interacts with its external clients, suppliers and customers. It is equally
important for organisations to develop relationships with its internal customers. In
order to ensure strong business relations are nurtured and appropriately
maintained. There are various relationships that are maintained by a business as
part of their daily operation with each relationship playing a significant role in
achieving business goals.
In a hospitality business, there are a variety of parties including various customers,
suppliers, providers and partners that help in the success of the business. There has
been a significant evolution in the way business has considered developing
relationships with more secrecy and competition with partners and suppliers where
price was the main interest in this relationship.
There has been a paradigm shift in this approach. With the complexities of the
business world leading to change in this approach where by the interconnections
between businesses and that relationships can benefit all parties, leading to
improved offerings for customers. Developing business relations is now a necessity
than choices as this inter - dependence is much need for each one’s progress in
today’s competitive market.
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Establish and conduct business relationships
Trust and respect in a business relationship is not always easy. You may be dealing
with business owners, managers, staff or customers who may have had bad
experiences with other businesses in the past, which can make them more
cautious in dealing with you.
Some of the reasons business relationships are becoming more important are:
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Advancement of customer needs and buying behaviours
Reduction of profit margins
Increased customer expectations
Growing technology influences in the workplace
Fragmentation of traditional markets
Increased intensity in global competition
More demanding and sophisticated customers
Shortage of skilled staff
2.1.1 Business with various groups
A business should form business relationships with different groups for different
reasons. In each case, the purpose is to make the business run smoothly, to
maximise customer service and as a result, maximise profit.
Hospitality businesses should form and maintain business relationships with the
following groups:
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Complementary service providers
Product suppliers
Service providers
Private contractors
Local community
Regional council
Emergency Services
Tourism bodies
Professional service providers
Business financiers
Developing trust and respect in a business relationship is not always easy. Business
owners, managers, staff or customers you are dealing with may have had bad
experiences with other businesses in the past, which can make them more
cautious in dealing with you.
Strong foundations of values help in building trust in a business relationship. The
traits that build respect and trust are:
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Establish and conduct business relationships
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Integrity
Honesty and sincerity
Reliability
Transparency
Competency
Creating win-win solutions
Treating people with respect
2.2 Customer relationships
It is very obvious that a business does not exist without its customers and must
establish and maintain strong relationship with them. Trust is the most significant
aspect in building effective customer relationships between the two parties. This
trust is two ways - the business will continue to provide the expected service and
trust that the customer will keep coming back.
Customers are classified in to two types:
• Internal customer
• External customer
2.2.1 External customer relationships
Sustaining the business and ensuring success is continued are the key challenges
any business is dealing with today. Therefore, maintaining good relationship with
existing customers is one of the strategies. Acquiring a new business is more
difficult than maintaining the current customers and meeting their expectations.
Encouraging repeat business is a more viable approach than continually pursuit
for new customers. It is up to ten times less expensive to sell to existing customers
than to new customers. A business will eventually disappear from the market in
pursuit of new customers but neglects the existing ones.
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Establish and conduct business relationships
One of the key strategies of today’s business must be to focus on being
relationship-focussed than being transaction-oriented. This will lead to a shift in
focus from short-term sales volume to long-term, repeat, quality delivery of service.
Some of the benefits of this approach are:
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Increased sales focussed on retaining customers
Reduction in marketing costs due to regular income
Good word-of-mouth advertising as a result of good service and loyalty
Reduced staff turnover and associated costs
Higher levels of customer service
Customers like to form a relationship with their service providers as it makes them
feel better about their choices. Businesses should try to tap in to this aspect of
human nature and use it as a way to increase their business and gain repeat
customers. Repeat relationships are important, regardless of the frequency of the
repeat customer.
You can even relate yourself as a customer when you prefer going to your
favourite restaurant or hair dresser just because you trust their service or the staff
have maintained good relationship with you. In each case, if something occurs
which upsets you as a customer, you are unlikely to return.
People are creatures of habit and once they are comfortable it is hard to shift
them. Change requires effort and for a customer to go to a new restaurant is a
bigger decision than going to the one where they know what to expect. This is
clearly shown with franchised businesses such as McDonald’s, where the customer
knows the product will be the same no matter which part of the world it is in.
2.2.2 Internal customer relationships
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Establish and conduct business relationships
We often tend to ignore another significant aspect of business relationship which is
our own employees. Referred to as internal customers, a business has employees
who also have needs and expectations which must be attended with the same
level of significance to that of external customers.
This helps in two ways:
• Happy employees ensure that the level of service is always up
• If the employees themselves do not have a conviction on their product or
service, then why would anyone else trust
From a word-of-mouth marketing perspective, there is nothing worse than
employees spreading negative news about the business. Many successful
companies first introduce their products to their staff before launching in the
market. They take inputs from their staff and tweak the product accordingly to
make it more successful.
Usually, in a kitchen, the chef will cook a new dish and serve it to the staff
members for feedback, before adding the dish to the menu. This concept can be
called as internal marketing and is a very effective initial testing tool. This also helps
in building strong customer relationship, as the employees feel that they are a
significant part of the business decisions.
Maintaining good customer relationship, both internal and external, is a challenge
for managers, but it can also be a great opportunity.
2.3 Other key business relationships
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Establish and conduct business relationships
2.3.1 Business alliances
The agreement between two businesses to provide each other with mutual
benefit and to offer them a collective advantage is known as a business alliance.
In the hospitality industry, such alliances help in addressing customer needs, thus
providing financial benefits to them both. Business alliance is usually arrangement
or relationship among independent businesses with corresponding goals,
established for a specific purpose and often for reducing costs and improving
customer service. The collaboration is usually managed by a team with members
from each business and held together by one agreement giving an equal share of
risk and opportunity to each business.
Such alliances are necessary to establish relationships with other companies to
gain an advantage over the competition. Any business alliance can be done
when there is trust, added with integrity, equality and conducted with
transparency.
2.3.2 Suppliers
There are one thing businesses are likely to neglect: effectively managing
suppliers. The obvious focus of companies is on fostering customer relationship but
that’s not the only relationship you should be nurturing. A good relationship with
your suppliers is just as important. In fact, it is so crucial not having one can make
running your business similar to driving off road in a family car.
Managing supplier relationship is one area all businesses need to become good at
because it can have significant effects. In fact, adapting a more strategic
approach with key suppliers can have immense long-term benefits for companies.
As they play a major role in your business, it’s crucial that you do everything you
can to keep them on board and happy. Look at them more than just someone
who supplies goods and/or services. They must be your allies because the kind of
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Establish and conduct business relationships
relationship you have with them can influence your success. As the business is
reliant on the supplier for products and services and will complain or move on if
their expectations are not met.
Ensuring the best quality products are available at the appropriate price,
whenever required is one of the key factors a supplier must ensure to build a
strong relationship with the business.
Changing to a new supplier or finding an immediate replacement can be costly in
terms of time and lost revenue. A business that focuses on paying 10% less for
products from an unreliable supplier will soon be out of business. Therefore, money
is not always the criteria for many businesses provided they can be assured of
reliable supply.
The business must also consider the cost of the time involved in obtaining the best
possible prices. Long-term cost reductions for loyalty and service also must be
considered.
Some of the key terms to be negotiated with suppliers include:
• Price
In order to stay within their allocated budgets, it is important for businesses to get
the lowest price available
• Quality
Quality of products and services to customers is always an important aspect which
businesses rely on. Benefits of high-quality ingredients include less wastage and
lower power costs, which results in higher profits
• Credit terms and conditions
Businesses generally follow credit terms with their suppliers that are typically
between 14 and 60 days. As the relationship develops, this may be an on-going
negotiation. This is essential for cash flow management as you may need to wait
for clients to pay their bills and if your expenses are constant you may even run out
of cash.
• Service/delivery schedule
Other than only ordering the products and services, knowing how and when the
deliveries will arrive is also important to ensure operational supplies are fulfilled.
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Establish and conduct business relationships
Especially this impact on storage space requirements when the business volumes
are high or located in remote locations.
• Discount structure
As often the transactions happen, discounts are often offered basis their regular
orders or as part of a reward/loyalty system. Significant cost reduction can be
obtained if all the requirements for a particular item are ordered from one supplier
periodically, rather than through different suppliers.
Benefits of good relationships with suppliers include information on:
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Special offers
Bulk purchasing promotions
Price changes, which allows for advanced budgetary planning
Possible changes to delivery times and dates
Future industry events and marketing opportunities
Chosen customers receive special treatment. Good relationships will also open up
the possibility of short-notice deliveries at times when there are unexpected
adhoc requirements. There are other benefits of maintaining a good working
relationship with suppliers, such as information on new products coming into the
marketplace.
2.3.3 Service providers
Utility services such as telephones, maintenance, power, water, laundry and
cleaning are commonly known as service providers. These are the series that are
required to keep a business running. It is not possible that all service providers may
be located in your location. Regardless of the location of the service provider,
maintaining a good business relationship with them will ensure a win-win situation.
2.3.4 Private contractors
Private contractor’s relationships are comparable to those with suppliers. Their
dealings are often longer term and are more personal due to frequent need for
meetings, contract renewals and negotiations. Private contractors are most viable
when there is not enough work to employ someone full-time, or when there is lack
of expertise in the specific area.
Private contractors who are often involved with businesses include:
• Cleaners
• Pest control services
• Electricians
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Establish and conduct business relationships
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Waste management services
Building and renovation services
Gardeners
Maintenance providers
Plumbers
Security services
Although outsourcing costs money, their support helps the business to focus on its
strengths and core service delivery rather than be in charge of every tiny aspect
of your operation. Private contractors create alliances for the tasks that distract
you from your core objective gives you more time to focus on the things that add
value to your business.
2.4 Forming relationships with local parties
The hospitality business is in charge of every tiny aspect of your operation,
therefore the business needs to create and maintain relationships with local
communities, councils and emergency services.
2.4.1 Local community
For a new business, getting the local community on-side is an important step. The
local community is a critical source of regular customers and must be leveraged
for regular and steady income. The amount of local business largely depends on
the reputation of the business in the local community. Maintaining regular income
will avoid the periods with cash flow problems and in turn provide employment for
locals.
This is particularly true in seasonal tourist locations. You might be very busy during
the season but if the local community does not come during the off-season, your
revenue will drop dramatically.
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Establish and conduct business relationships
2.4.2 Regional councils
Councils are instrumental in approving planning, licensing and many operational
considerations, so it is important to understand and follow the Council processes,
regulations and guidelines. This is a critical relationship for any hospitality business,
especially if a new construction or renovation is occurring, or if it is hosting an
outdoor event.
The regional council is also responsible for many of the municipal services required
by a business, such as:
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Road/access maintenance
Waste management
Approval of planning applications
Parklands maintenance
2.4.3 Emergency services
It is very vital to maintain a good relationship with police, fire and ambulance
services for the times you will need them. Although emergency services are
seldom required, however, a relationship with Emergency Services has only
benefits for a business. A manager should conduct regular meetings with
emergency services to ensure awareness of the property and allow highlighting
any issues critical to emergencies. A good relationship with Police will also have
the benefits of up-to-date information on issues such as known fraudsters in the
area dealing with conflicting or violent situations in the work place.
2.4.4 Tourism bodies
There are a large number of industry bodies, ranging in focus from multi-national
to national, state and local. Some hospitality businesses benefit more from
relationships with tourism bodies. Each country will have its own government
bodies which can be utilised by hospitality businesses.
Global bodies include PATA (Pacific Asia Travel Association), WTO (World Tourism
Organisation) and WTTC (World Travel and Tourism Council). National Government
bodies include Tourism Australia, Australian Standing Committee on Tourism
(ASCOT) and the Tourism Ministers’ Council.
Industry bodies are excellent sources of information, support and data and should
be used regularly. Here are some of them:
• Australian Society of Wine Education (ASWE)
• Australian Culinary Federation (ACF)
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Establish and conduct business relationships
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Australian Hotels Association (AHA)
Australian Tourist Commission (ATC)
Australian Amusement Leisure and Recreation Association (AALARA)
Australian Federation of Travel Agents (AFTA)
Australian Tourist Export Council (ATEC)
Business Events Council of Australia (BECA)
Conventions and Incentives New Zealand (CINZ)
Caravan Industry Australia (CIA)
Clubs NSW
Clubs NZ
Ecotours New Zealand
Exhibition and Event Association of Australasia (EEAA)
Hospitality Association of NZ (HANZ)
Hotel and Catering International Management Association (HCIMA)
Hospitality Standards Institute NZ (HSI)
International Special Event Society (ISES)
Meetings Industry Association of New Zealand (MIANZ)
Meetings and Events Australia (MEA)
Meetings Industry Association of Australia (MIAA)
New Zealand Winegrowers
NZ Tourism
Restaurant Association of NZ
Restaurant Catering Australia (RCA)
Travel Association of NZ
Tourism Training Australia (TTA)
Venue Management Association (Asia & Pacific) Limited (VMA)
2.4.5 Tourism trade events
Tourism Australia is involved in many trade events, where large numbers of
overseas tour operators are invited to Australia to be introduced to the market.
Australian operators are invited to set up displays and to talk with the overseas
operators. These types of events are excellent opportunities for developing
relationships with international travel agents and tourism bodies.
Each state and territory have its own government tourism body as well as local
collectives. Information on tourism bodies can be found at the following websites:
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destinationnsw.com.au
discovertasmania.com
qtic.com.au
southaustralia.com
tourism.australia.com
tourism.sa.gov.au
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Establish and conduct business relationships
•
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tourism.wa.gov.au
tourismnt.com.au
tourismqueensland.com.au
tourismtasmania.com.au
tourismtopend.com.au
tourismvictoria.com
visitnsw.com
visitvictoria.com
westernaustralia.com
2.5 Professional services
The hospitality businesses and businesses in general, need to develop business
relationships with experts such as bankers, accountants, lawyers and architects.
This is a need because these contractors have specialist skills which can be
applied to the TH&E industry. TH&E operators generally do not have either the time
or knowledge to be able to thoroughly conduct these aspects of their businesses.
Specialist help and advice is particularly important for a new business when it is
starting up. Four of the main relationships which need to be formed are shown
below. Select the navigational circles to travel through these relationships.
2.5.1 Financier
A business banker or financier is crucial, particularly when a business is starting out
or expanding.
Some of the services provided include:
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Finance – mortgage, overdraft, business loans, lines of credit
Business credit cards
Business bank accounts
EFTPOS facilities
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Establish and conduct business relationships
• On-line banking
2.5.2 Insurance agency
There are many types of insurance available to a business, some of which are
compulsory and some which are optional.
a. Compulsory
• Property and fire insurance – protects the business premises against any
damage sustained in a fire or other event leading to loss of the building, fixtures
and/or fittings of the premises
• Workers’ compensation insurance – provides a safety net for employees in case
of injury at the workplace. Workers’ compensation insurance is based on
industry groups and the likelihood of a claim
• Product liability insurance – protects the business against any claim arising from
the products either made by the business or supplied by the business and sold
to the customer
• Public liability insurance – protects the business against any claim due to an
accident involving the business or its staff
b. Optional
• Income protection insurance – protects the business owner in case of sickness
• Loss of profit insurance – protects the business against adverse circumstances
such as fire or other damage that may lead to closure and covers the income
you are unable to earn while the premises are rebuilt
• Contents and equipment insurance – if an item can burn, be damaged or
stolen and its loss would affect the business, it is advisable to insure the item
• Malicious damage and theft insurance
• Equipment breakdown insurance
• Glass breakage insurance
2.5.3 Accountant
Accountants are mostly responsible for registering companies and businesses and
handling the subsequent paperwork. Depending on the size of your business, an
accountant provides many different services. From a day-to-day bookkeeping
necessity such as payroll, superannuation, PAYG tax, FBT requirements etc. to tax
advices. Some businesses will use their accountant as the registered address for
their business so that all correspondence goes directly to the accountant.
Leading accountants offer a wide range of accounting services to businesses,
including:
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Establish and conduct business relationships
a. Business planning
• Business startup advice
• Effective structural advice
• Implementation of controls and procedures
b. Budget forecast preparation
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Process, Completion and Management
Internal Business Unit Structures
Strategic Review
Stakeholders and Communication
c. Goods & Services Tax
• Compliance with GST Act
• BAS assistance, preparation & Lodgement
• Registration for GST, PAYG Withholding, FBT
Individuals
o Tax effective planning
o Compliance with Australian Taxation Law
o Preparation & Lodgement of Income Taxation Returns Partnerships
o Tax effective planning
o Preparation & Lodgement of Partnership Taxation Returns
o Compliance with Australian Taxation LawM
d. Partnerships
• Tax effective planning
• Preparation & Lodgement of Partnership Taxation Returns
• Compliance with Australian Taxation LawM
e. Companies
• Tax effective planning
• Compliance with Australian Taxation Law
• Preparation & Lodgement of Company Taxation Returns
f. Trusts
• Tax effective planning
• Compliance with Australian Taxation Law
• Preparation & Lodgement of Income Taxation Returns
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Establish and conduct business relationships
2.5.4 Lawyer/solicitor
Relationship with lawyers helps in dealing with ensuring compliance with the many
laws and regulations in the hospitality business. A lawyer can advise the business
on its rights and responsibilities and defend the business from legal issues that arise.
Services provided by a lawyer include:
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Advice on employment issues such as unfair dismissal claims and discrimination
Preparing partnership and shareholder contracts
Articles of memorandum and association
Establishing employment contract templates which can be modified for new
hiring
• Customer issues which may require legal advice
• Licensing of premises and liquor licensing
2.6 Nurturing a relationship
As we understand that good relationship is an integral part of business success
and it is imperative that we make them a priority. The possibilities of having a large
and nurtured professional network are endless. The more people we meet, the
more people will remember who we are and what we do. In the past, relationships
with customers were personal and in-depth.
Building real and mutually valuable relationships requires consistent and
dedicated work over time. In order to build a great team that help in business
success, we have to put others first and establish ourselves as listeners and helpers.
If we dedicate enough time to building and nurturing a business relationship, it will
be there for us when we need it.
With time, relationships shifted towards brief, all together customer relations with a
focus on business volume. With today's competitive market, however, each case
requires effective communication to ensure that all parties understand your
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Establish and conduct business relationships
position, needs, requirements and what you are offering. It has indeed become
necessary to focus more on the individual customer and their unique tastes and
preferences. Business relationships should follow a similar trend, by which goodwill
and trust are promoted to ensure long-term partnerships.
2.6.1 Maintaining contact with customers and suppliers
There are various opportunities for maintaining contact and relationships with
customers, suppliers and partners. Techniques of communicating and maintaining
relationships may involve formal and informal methods of networking that include
the following:
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•
•
•
•
•
•
•
•
•
Online communication
On-site visits (Famils)
Brochure contributions
Overseas missions
Product launches
Personal visits
Personal correspondence
Promotions
Association membership
Social media
a. Online communication
There has been incredible growth and impact of internet on business from the
early 1990’s. Dedicated websites for promoting products and services, business
location and facilities, online bookings and purchases are most obvious in today’s
world.
Websites have the benefit of being a dynamic form of communication. The
internet also helps in quick communication with the customer base. Emailing is one
of the cost-effective methods of sending out updates on new products, specials
and promotional deals.
Periods of closure do not affect emails; correspondence which occurs out of hours
can be received and dealt with at the next available opening time. The business
can even add pictures, videos and virtual tours of the facilities and products and
offer access to online training. This is a quick and effective method of capturing
the market anywhere in the world, at any time. Every feature and requirement
including the design, language and style preferences can be tweaked based on
the business requirement
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Establish and conduct business relationships
b. On-site visits (Famils)
Familiarisation visits, also known as famils, are inspection tours by customers who
visit the premises to have a meal or stay overnight at business expense. These are
often used by hotels and resorts as a complementary service to maintain
relationships with key people and to keep them up-to-date with the current
products and services. Famils can be used as a reward for long-standing or highprofile guests as a way of expressing gratitude for previous business, while at the
same time encouraging future business. As Famils intend to promote business, they
form part of the marketing budget.
c. Brochure contributions
A traditional method of advertising is travel brochures that contain information on
various hotels and destinations. As travel brochures contain advertisements for
many competing establishments, it is important to maintain good relationships to
ensure a prime position in the brochure. Travel agents will organise the production
of a brochure and allocate space to particular hotels and businesses, reliant on a
contribution to the production costs. Usually a flat rate is applied, with a bonus
system depending on the volume of business generated. It is often possible to
negotiate a discount after having contributed for a number of years.
d. Overseas missions
Overseas missions are large, organised endeavors conducted by businesses that
have international markets as a large part of their customer base. Usually, as a
way of promoting the region, the tourism bodies such as a state or regional tourism
commission, participate in conducting such events. Vendors from all areas of the
hospitality industry are invited to participate in order to show their wares. His helps
in gaining huge credibility and impact overseas. Support services are provided by
Austrade, which can be hugely beneficial to businesses with no contacts in the
local market.
e. Product launches
The product launches can increase awareness of your product and if you are
hosting the product launch, it can generate exposure and revenue for your
establishment. All promotions must be geared towards your final target market.
Hosting a product launch gains exposure and can have a major spin-off effect,
created by association. Even annual launches of a special product can be used.
f.
Personal visits
A personal visit to your customer always works wonders in building strong
relationships make them feel special and significant. In situations where a product
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or service is sold to another business, it is important for a representative of the
business to periodically visit the client to gain feedback and to confirm that they
are a valued customer.
In the hospitality industry it is important to communicate with both customers and
suppliers. It is easy to ignore all but the largest of your customers and suppliers, but
this is not good practice. It is important to make time to visit the smaller customers
and suppliers, as every bit count. Remember that your small customers might
become big customers one day and if you have maintained a good business
relationship with them, then you will be in a position to capitalise on their growth.
g. Personal correspondence
If it is not possible to visit all of your customers or allies, it is necessary to maintain
contact through other means to make them feel valued and important. An
occasional telephone call to check that everything is running smoothly specially
to follow up a complaint or dissatisfaction expressed by the customer shows that
you own the problem and helps to maintain the relationship.
Birthday, anniversary and Christmas cards or a personal handwritten note are
used by many establishments as a way of making the customer or supplier feels
appreciated. Personal correspondence is a positive method of communicating
which is often appreciated by the customer and with the growing technology a
text message or an email or social media also provides new ways of
communicating.
h. Promotions
Promotions are a good way of maintaining contact with the customer base and
securing loyalty and long-term custom. All existing customers should be kept upto-date on any new products and services or any special rates.
i.
Social media
Social media offers many benefits to business owners, as it allows them to reach
out to their customers and to gain the attention of more people/potential
customers. A social media enables businesses to get exposure, traffic and gain
market insights. Types of social media include:
•
•
•
•
•
•
Social networking (Facebook, LinkedIn, Google+)
Microblogging (Twitter, Tumblr)
Photo sharing (Instagram, Snapchat, Pinterest)
Video sharing (YouTube, Facebook Live, Periscope, Vimeo)
Company websites
Internet advertising
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Benefits of social media can include:
•
•
•
•
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•
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Reduced marketing costs
Increased sales
Increased traffic to your website
Improved ranking on search engines
Greater customer engagement
Greater access to international markets
Opportunity for customer feedback
Opportunity to conduct market research about your customers
Improved networking opportunities with customers and other businesses
j.
Association membership
Global bodies include PATA (Pacific Asia Travel Association), WTO (World Tourism
Organisation) and WTTC (World Travel and Tourism Council). National Government
bodies include Tourism Australia, Australian Standing Committee on Tourism
(ASCOT) and the Tourism Ministers’ Council.
Industry bodies are excellent sources of information, support and data and should
be used regularly. Here are some of them:
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•
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•
•
•
•
•
•
•
•
•
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Australian Society of Wine Education (ASWE)
Australian Culinary Federation (ACF)
Australian Hotels Association (AHA)
Australian Tourist Commission (ATC)
Australian Amusement Leisure and Recreation Association (AALARA)
Australian Federation of Travel Agents (AFTA)
Australian Tourist Export Council (ATEC)
Business Events Council of Australia (BECA)
Conventions and Incentives New Zealand (CINZ)
Caravan Industry Australia (CIA)
Clubs NSW
Clubs NZ
Ecotours New Zealand
Exhibition and Event Association of Australasia (EEAA)
Hospitality Association of NZ (HANZ)
Hotel and Catering International Management Association (HCIMA)
Hospitality Standards Institute NZ (HSI)
International Special Event Society (ISES)
Meetings Industry Association of New Zealand (MIANZ)
Meetings and Events Australia (MEA)
Meetings Industry Association of Australia (MIAA)
New Zealand Winegrowers
NZ Tourism
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Establish and conduct business relationships
•
•
•
•
•
Restaurant Association of NZ
Restaurant Catering Australia (RCA)
Travel Association of NZ
Tourism Training Australia (TTA)
Venue Management Association (Asia & Pacific) Limited (VMA)
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3
Conduct negotiations
Any business relationship involves negotiation. Negotiation is a method by which
people settle differences. It is a process by which compromise or agreement is
reached while avoiding argument and dispute. In any disagreement, individuals
reasonably aim to achieve the best possible outcome for their position or the
organisation they represent. However, the principles of fairness, seeking mutual
benefit and maintaining a relationship are the keys to a successful outcome.
Negotiations are a central part of any business relationship. Negotiations allow
both parties involved to set out their own goals and targets so that a mutually
beneficial decision can be reached. Negotiation skills are a necessity for anyone
in a management situation, as negotiations occur in everyday work. Negotiations
do not just occur at a boardroom level, negotiation is a key facet of any
manager’s job. The food and beverage manager will have to negotiate with
suppliers in order to get the best deal; even dealing with staff issues requires
negotiation skills.
3.1 Stages of negotiation
In order to achieve a desirable outcome, it is recommended to follow a structured
approach to negotiation. For example, there might be an upcoming week end or
a holiday season involving more efforts from the staff.
The process of negotiation includes the following stages:
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3.2 Representing your establishment
You must represent your establishment throughout the negotiation process. This
means that you must deal with a negotiation process with a complete understand
of why you are negotiating and how best to get a desired business outcome.
There are several points that are useful to remember when conducting a
negotiation or any kind of business meeting.
3.2.1 First impressions always count
Ensure you are presentable. Groom in a way that is best suitable for the industry
you are working in. understanding where the participants come from what their
ethnic back grounds are will be an added advantage. Anything which contrary
to the people you are going to deal with means you will have to work even harder
to get a result.
3.2.2 Greeting
We all want to be treated with respect, and it starts with the very first greeting.
• Stand when someone new comes into the room whether you are a man or
woman
• Do make eye contact and smile
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• Greet such as Hello, Good morning/afternoon or Pleased to meet you
• Offer your right hand out-stretched with palm facing left to shake hands
• A handshake should last as long as it takes you and the other person to say your
names
• Introduce yourself by making direct eye contact and saying your first and last
name
• If you didn’t catch their name the first time, ask them politely to repeat it
• At the end of the meeting, shake hands again and say how nice it was to meet
them. Use their first name
• Follow up if you promised to send them something, call them, or anything else.
Follow up is a key to success
Never make jokes or wise cracks about anything, especially their business/office or
their personnel. Once the business relationship has reached a more familiar level
you may be able to bring humor into the meetings, but as a general rule you
should never do this until you are sure of the ground you are standing on. This only
makes you look unprofessional and the situation becomes much more difficult.
3.2.3 Dos and Don'ts
Refrain from dominating the meeting, as your domination will suppress others from
putting their point forward. Always encourage creative comment and thinking. Be
aware that people in the meeting may be uneasy and afraid to speak up for fear
of looking senseless. If someone makes a suggestion and you already knew about
it, you can just politely accept the point which has been made. If you feel the
need, then address it with that person by telling them outside the meeting. You
have to keep in mind that the discuss is intended to make the right decision and
not a competition. Always offer encouragement and praise when the time is right.
3.2.4 Common ground
Sport is often a good icebreaker to ease out talks other than business but it can be
a thin line between being professional and asking too many questions deviating
for too long. A coffee break is an ideal time for casual conversation. It gives
everyone a chance to switch off and relax briefly. Finding a common ground
during discussions will help you build a more personal relationship with the
prospective client or those in the meeting. It is advisable to always stay away from
politics, religion and any subjects which may have a sensitive nature.
3.2.5 During the meeting
During the meeting it is important to follow certain etiquettes that not only impact
your meeting but also will make it successful. Speak clearly, take notes and keep
eye contact. If you forget a name, which is quite obvious, it is far better to be
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Establish and conduct business relationships
honest and tell them rather than guess and get it completely wrong. However,
you can only get away with this once so make sure you remember it second time
around. During a meeting, never interrupt before the person talking has finished
speaking. Be confident of your product, service or negotiation position and make
sure you fully understand how it can be of use to those attending the meeting.
Do not get tempted to speak bad about the opposition. There is nothing wrong
with even giving the opposition some slight praise while pointing out the benefits
of using your product or service.
3.2.6 Signs of closure
To win a negotiating advantage, recognise the signs which play a vital role. Look
for signs which indicate you are gaining their confidence. There are various signs
that indicate which direction the negotiation is going. One of the most common
and clearly visible is the body language. The nonverbal and verbal
communication show what they are exactly thinking about. If the customer is
demanding and keeps making negative comments about the product/subject
then you know you have to work harder at convincing them with something which
will turn the meeting around.
Another most common aspect is the price, which easiest negative to deal with. If
you have a truly great product then you should be able to close the deal
regardless of cost, by directing them to all of the positives. However, if the
customer does not respond to this, you may be able to offer them a better deal if
they enter into a long-term commitment that is within the bounds of your authority
and not to offer a deal which may not be approved by senior management.
3.2.7 Build on the relationship
Once you have built the confidence of those at the meeting you must develop on
that relationship of trust and integrity. Follow-up meetings and courtesy phone
calls are a must; however, you must never become over-familiar or complacent in
your position. Always act in a professional manner.
3.3 Negotiation techniques
Some of the techniques for conducting effective negotiations are as follows:
• Understanding of the other party’s position, needs, wants, products and
services
• Must have realistic goals and targets
• Clear understanding of legal guidelines and limitations
• Ensure professional behavior
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• Understand the effective negotiation process
• Focus on win - win outcome
• Thoroughly research and understand your position in regards to facts, needs,
wants and organisational requirements
• Have a fallback position (Plan B)
• Evaluate the effectiveness of the negotiation and your part in it
• Communicate the results of a negotiation to all those affected such as
colleagues, staff, financial backers
Negotiation skills are as important as operational skills in successfully running a
business. Major part of business success or failure depends on effective
negotiation skills.
Successful negotiations will reply on the ability to understand the following:
• Negotiation principles such as strategies and techniques
• Understanding of cultural issues such as background, social
environmental concerns, customs and personal attitudes
• Applying awareness and observation for adapting to various situations
values,
A thorough research and understanding of your company and its position and
speak to the appropriate people where ever necessary based on their authority
and job positions. This will help to fully understand what your company wants to
achieve before you commence negotiating.
3.3.1 If negotiation is protracted
Negotiations can be tricky if your company is substantially smaller or has
significantly less resources than your counterpart. In case of protracted
negotiation, ensure that all the relevant parties are informed with all necessary
and up-to-date information. This may involve:
•
•
•
•
Email communication of the outcomes of the meetings
Arranging a time with all the people involved for a debriefing session
Gather feedback or suggestions for moving the negotiations forward
Send internal communication particularly when there are a number of
company representatives
3.3.2 Negotiation with cultural backgrounds
Cultures form the belief system of an individual or the organisation. Understanding
of cultural issues such as:
• Background
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Establish and conduct business relationships
• Social values
• Environmental concerns
• Customs and personal attitudes
Organisations or the individuals that you deal with might have a large impact on
the outcome of your negotiations. Therefore, anticipation of various cultural
scenarios while negotiating helps in ensuring its effectiveness.
3.4 Negotiation principles
Generally, good negotiators are those who encourage understanding and show
interest in the other party. Constantly clarifying the issues by using questioning
techniques helps a negotiation to run smoothly by avoiding misunderstandings.
3.4.1 Base negotiations on relationships
The foundation of a good negotiation is a strong business relationship.
Negotiations should be conducted on the basis that both parties are willing to
resolve the matter. It is a usual human behavior that they are more comfortable in
dealing with someone you know and trust, so it is important to start any potential
relationship on the right foot. Understanding the other party’s needs, priorities,
motivations and interests helps in leveraging a successful discussion as it gives you
a good idea before a negotiation begins.
It is important to act as though you have a strong rapport with the other person
and a strong business relationship, even if you do not yet have one. Understanding
that this discussion will bring mutual benefit is most important to start any potential
business relationship.
3.4.2 Remain open to suggestions and ideas
Being open to suggestions and ideas is one important aspect of negotiating. You
should try to remain flexible, within the boundaries of your authority, and be
imaginative. This will help you to avoid poor decisions, jumping to conclusions and
adopting a position which is rigid. During the course of a negotiation, unforeseen
circumstances may arise which offer opportunities and solutions that neither side
had been aware of before initiation. Keeping an open mind with active listening is
a key element.
3.4.3 Negotiate on substance rather than position
In order to make a fair decision based on the outcome, that is viable for both the
parties it is important to negotiate based on what would add value to the
outcome rather than the power of each party. When arguments are based on a
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personal position, rather than achieving the best possible outcome, they can
easily deteriorate into a battle of wills. Satisfying the requirements of both parties
must be the prime focus both parties and personal egos and power struggles must
not be influence outcome of the negotiation. Prejudice impacts the
3.4.4 Accept the legitimacy of the other party’s position
Unless you accept the other party’s position as being valid, or are willing to
consider their point of view, the negotiation will not work. Your behavior and
communication must indicate that you understand the other party’s requirement
and their position to achieve the desired outcome.
3.4.5 Separate the people from the problem
Subjectivity must be avoided during a negotiation. The discussion should focus on
facts. If a negotiation is over the payment of money then matters such as amount
due, any discounts available, installment periods etc. must be the prime focus.
When there’s a shift of discussion to personal levels such as trust of customer, the
negotiations become difficult. Feelings of threatening or anger might even lead to
walking out of the negotiation then you are likely to get a worse deal or conditions
out of the negotiation than you would have if you had stayed focused on the
facts.
3.4.6 Use questions regularly and appropriately
Effective communication skills play a major role to become a good negotiator.
Using questioning techniques help to gain as much information and clarity of
positions as possible.
There are two types of question: closed questions and open questions.
• Closed Questions – A closed question is one which results in a yes or no answer.
Questions often begin with “do you” or “will you”.
• Open Questions – Open questions are far more useful to a negotiation as they
make the person give their opinion. Open questions start with phrases like “how
will you” or “can you”. Open questions encourage discussion and force the
person to clarify their position and give more information.
The closed question simply asks for a yes or no answer and gives nothing away
about your own position. The open question indicates that you do want to form a
relationship and forces the other party into a discussion.
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3.4.7 Negotiate with a person in authority
No matter how valid your point is, it is of no use if you are talking to the wrong
person. Then negotiation will never result with a positive outcome if you are not
dealing with the right person who is authorised to take decisions.
Some negotiators may delay making a decision so that they can discuss the
negotiations with other parties or do more research. Follow up and try to get
feedback and a decision before the close of the meeting or agree for the next
meeting with a superior before you close your discussions.
3.4.8 Negotiate to find a Win-Win situation
A business is hard to sustain if there is not win – win situation. Apart from looking
after yourself, it is more advisable to reach an outcome that benefits both parties
involved as both of them have their individual stakes and benefits. This is extremely
critical when you are negotiating.
A win-win negotiation is a careful exploration of both your own position, and that
of the opposite party, in order to find a mutually acceptable outcome that gives
you both as much of what you want as possible. If you both walk away happy
with what you've gained from the deal, then that's a win-win.
3.4.9 Negotiate with a clear Plan B
No matter how much you plan there is always a possibility that your negotiations
will require an alternate deal. A Plan B formulation ensures any unexpected
surprises are taken care. In case out figure out that the negotiation is not turning
out fruitful, it may be necessary to re-evaluate the discussions and information and
therefore adjourn a meeting.
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However, you must be careful to use good communications and positive
approach for the next possible steps so that the relationship is not damaged and
business alliance outcome may still be reached. Especially when there is a lot of
money at stake or the decisions make a serious business impact, it advisable to
consider all the aspects of negotiations with a well thought Plan B.
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4
Making formal business agreements
4.1 Types of agreements
Business agreements come in various types hospitality business may have to enter
in to such as:
• Management agreements
• Franchise agreements
• Commercial property lease agreements
4.1.1 Management agreements
A management contract is an arrangement under which operational control of
an enterprise is vested by contract in a separate enterprise that performs the
necessary managerial functions in return for a fee. Management contracts are
often formed where there is a lack of local skills to run a project. Occasionally the
owners of hospitality establishment will contract other companies to manage their
business for them. A large chain will be appointed to take on the management of
an individual establishment.
Management agreements are usually long-term arrangements. Under such
agreements, the hotel operator has almost exclusive control. The hotel owner's
role is that of a sleeping partner until problems are encountered. Many hotel
groups not only own and manage their own hotels; they also manage hotels and
resorts on behalf of private owners and investors. In general, a group of investors
take decisions on hiring management experts for the operations and increasing
the profitability of the business.
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There are various conditions considered for negotiation, but typical arrangements
are listed below:
•
•
•
•
Management fees of around 2% of gross revenue are paid to the contractor
10% of gross profit is paid to the contractor
Annual fees for marketing or additional expert services
Allocated monies for refurbishments and improvements when deemed
necessary by the contractor and subject to approval
• Performance-based incentive scheme
The management company simply manages the property and is not liable for any
of the operating costs of the business.
4.1.2 Franchise agreements
An agreement between a parent company and another company which allows
the franchisee to use the brand name of the franchiser is known as a franchise
agreement. Under this agreement, the franchisee is permitted to use the logo and
business model designed and developed by the franchiser. These are shared on
condition of following certain standards and terms of the contract by the
franchisee.
It also benefits the franchisee as they already have an established name and
market, however they cannot expand the business individually. An example of
such establishments is fast food establishments and hotels that operate in this
model anticipating guaranteed business.
4.1.3 Commercial property lease agreement
Owning their premises is quite unlikely for small or medium sized businesses in a
hospitality business. They rather opt for signing a formal lease agreement for a
fixed term. All negotiations must be carried out based on the amount of money,
length of lease and person responsible for different aspects of the building
maintenance.
Some of the arrangements include:
• A lease period of 3, 5 or 10 year or a fixed term renewable lease
• Office fittings and furnishings and facilities provisioned e.g. office furniture, car
parking spaces
• Ownership and costs of licensing arrangements for a restaurant or bar
• Refurbishment and renovation costs and responsibilities
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The initial capital of a hospitality establishment can be huge involvement from
various parties requiring that also require the parties to be open to negotiation.
Costs to be negotiated include:
• Rent - There is a possibility for the owner to reduce the rent for a period or go
rent free until there is substantial cash flow generated. The operator would then
have to pay a higher rent thereafter at a higher rate including interest until the
debt is cleared. It is generally a rare scenario for a landlord to do this as the
margins in the hospitality industry can be expected to be very low.
• Fit-out costs - Franchise agreements can involve large fit-out costs where as
part of an investment strategy, the owner opts to share the costs of fitting out
the establishment through maintaining some ownership of the fit-out.
• Supplier costs – Until there is sufficient cash flow generated, the suppliers may
be agreeing to extend the credit period. This type of business relationship also
encourages loyalty.
Always seek professional legal advice on all matters that require a legally binding
contract. Honoring the contract is vital. About 85% of the hospitality businesses go
bankrupt in the first 2 years, therefore legal contracts are binding and if the
business is not successful you still have locking into a 5-year lease could mean that
you have not only lost your business but also have to pay rent for another 3 years.
4.2 Nine aspects of a formal business agreement
A formal business agreement is signed once all negotiations are completed and
agreed upon; this agreement is formal and legally binding. A formal business
agreement is divided in to nine steps that must be followed.
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Establish and conduct business relationships
Step 1- Obtain organisational approval
The first and foremost thing to do before any formal agreement is to ensure that
the organisation reviews and approves it. Awareness of the legal implications
related to the agreement is critical. This can mean both seeking the authority for
making the decision before the negotiations commence, or reaching an agreed
position and then seeking approval from a superior. Subsequently, by taking
assistance from outside legal experts helps in building good business relationships.
Step 2 - Get the agreement in writing
In the business world, most agreements should be in writing even if the law doesn't
require it. A written agreement is less risky than an oral agreement, because
agreed terms can often be complex and it is hard to remember all the details of
such an agreement. Alternately, you can have a document that clearly specifies
each party's rights and obligations in case of confusion or disagreement. This is
also helpful in case there is a changeover of the personnel who was initially part of
the agreement.
A written document also works as an evidence of any disputed between the
parties. If a legally binding document of the agreement is available then it is much
harder for one party to avoid keeping the agreement.
As a last resort, the agreement can be used as proof of an agreement if
compensation is sought through legal channels. A business must ensure that the
agreement is still binding even though the employees are no longer with the
company. New employees will only be able to fulfill the original agreement if all
the details are known and easily accessible.
Step 3 - Read the agreement thoroughly
Any written agreement authorised and signed by the parties is a legally binding
document and must be thoroughly read and all relevant information must be
verified for accuracy. It also ensures that all parties are on the same page and
understand their commitments, responsibilities and obligations. The document
must be forward to your legal advisor to ensure that there isn’t any unintentional
breach of legislation.
Step 4 - File the signed agreement
In the event of a significant deterioration in the relationship, the agreement can
be considered as a form of evidence in a legal dispute. The wording must be as
explicit as possible in order to avoid potential loopholes with copies of the signed
agreement kept in case of future problems or disagreements. If it is not possible to
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Establish and conduct business relationships
get an agreement in writing, then notes of a verbal agreement must be taken
and filed appropriately. Agreements should be kept in a locked, fireproof filing
system.
Step 5 - Use good faith
Good faith refers to a person who is making an agreement believing that they
can in fact provide the products or services agreed to. It is an abstract and
comprehensive term that encompasses a sincere belief or motive without any
malice or the desire to defraud others.
All commitments specified in an agreement must be carefully analysed and
breach in such commitments could be mostly due to an unforeseen change in
circumstance; however, you must be careful not to overstretch yourself through
an inadvisable commitment.
For instance, airlines occasionally overbook flights anticipating that some
customers will not show up. If and when all the paying customers do show up, the
airline is forced to recompense the passengers, which is both inconvenient and
bad for reputation.
Step 6 - Agree to dates, KPIs and timelines
An agreement must be time bound with milestones, dates and key performance
indicators (KPI). Performance indicators can be used in scenarios where one party
is a service provider such as marketing goals and targets should be set before the
agreement is signed to avoid any kind of disagreement.
The goals must be specific and clear with quantitative figures and not ambiguous.
For example, you could measure the percentage increase in sales, or set a target
of a given amount e.g. $5000 turnover for the event. Qualitative measures such as
“the event will be outstanding” can be interpreted differently and in case of
disagreement neither party can argue successfully.
Step 7 - Ensure third-party performance
At times there are certain aspects of the agreement that requires you to rely upon
a third party. You should include this aspect in the agreement in some way of
addressing the failure of a third party and the consequences of that failure. Even if
the third party does not supply you with the equipment, you are however, in
breach of the agreement, even though it was not directly your fault. In this case
you should include in the agreement an approach of addressing the failure of a
third party and the consequences of that failure.
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Step 8 - Disseminate agreement information
Based on certain management observations and analysis there might be various
polices and agreement changes in the business that include changes to the
regular operations that staff must follow. Staff must be made aware of all the
changes else the agreement may be in jeopardy.
If a hotel secures business from a large client and one of the terms is early check-in
and late check-out. It would be extremely embarrassing to the hotel if the first
clients are refused the agreed service, simply because the manager failed to
update new rules to the front desk staff.
Step 9 - Resolve problems and breaches
All problems to the agreement breach even though they were not conducted
deliberately by both parties must be promptly and ethically dealt. If you become
aware of a breach, do not cover it up, rather you should identify the problem,
inform the other party of the problem and work together to find a solution that
suits both parties.
4.3 Factors affecting contracts
Reviewing, negotiating and updating your contracts is import as there are various
factors that could change over time which could affect terms and conditions in
your contract. These may include:
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Increased pricing in supply and delivery
Suppliers availability
Change in distribution costs
Customers using the services
The service levels experienced or expected
External or environmental factors
4.4 Making the contract or agreement
Contract is a voluntary, deliberate, and legally binding agreement between two
or more competent parties. Contracts are usually written but may be spoken or
implied, and generally have to do with employment, sale or lease, or tenancy.
A contract usually can be a written or oral agreement that sets out their
conditions and is imposed by law. Contracts can vary from a simple one-page
document to formal agreements, drawn up by a lawyer, for complex
arrangements.
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According to the Law Society of NSW there are three basic elements in a
contract:
• Agreement (arising from an offer and an acceptance)
• Consideration - an exchange of some benefit or something of value by the
parties, for example a party pays a sum of money for goods supplied by
another party, or money is paid for work carried out by the other party
• An intention to enter into legal relations - that is, the parties intended to enter
into a legally binding agreement (although this is often not specifically stated, it
is usually implied)
Therefore, for a contract to be valid there must be an agreement and the people
who signed the contract must be fully aware of the specific details in the contract.
Contract law is governed by common law and at least 5 separate pieces of
legislation as contract law is a very complex area.
As a result, it is essential that any contract you enter into should be reviewed by
your lawyer before it is signed. Contracts should always be written down and
signed and verbal agreements must be avoided as it provides no proof of the
agreement.
4.4.1 Specialist advice for making agreements
Since a contract or agreement is legally binding, therefore it is advisable to use
specialist assistance for developing such documents for your business.
• Legal advice
To ensure the contract is written using appropriate legal terminology and structure,
so it is legally binding, a lawyer can assist in developing the contract.
• Product or service advice
A specialist may provide advice on details to be included in the contact if the
contract is for a specific product or service,
4.4.2 Information included in a contract
An agreement for contractors must contain the following:
• Rights and obligations of each party
• Contracting parties’ names, including trading names and ABN/ACN, and their
contact details
• Signatures of both parties
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Particulars of the service/product to be provided
Any conditions related to the service/product
Key performance indicators (KPIs) to be met by contractors
Financial terms, including payment schedules
Cancellation clause and any late payments penalties
Delivery times
Contracts should be read carefully so that you are aware of any special
requirements; if in doubt have a contract drawn up or read over by a lawyer. If
regularly using contracts you could have a lawyer draw up a standard contract
that can be tailored to the different contractors. Keep both electronic and hard
copies of all documentation as it will be used to monitor and ensure all
agreements are met. It is especially important if legal proceedings need to occur,
for example if you are seeking a refund for non-delivery of a product or service.
4.4.3 Contract clauses
A contract clause is a specific provision or section within a written contract. Each
clause in a contract addresses a specific aspect related to the overall subject
matter of the agreement. Contract clauses are aimed at clearly defining the
duties, rights and privileges that each party has under the contract terms. Clauses
usually discuss 'what if' scenarios. Depending on the type of contract you are
dealing with, there may be many clauses.
Some common types of clauses include:
a. Exclusion clauses
In contract law, these clauses are used to exclude or limit a person’s liability if they
breach the contract. For example, “If Party A breaches this contract, Party A must
pay $1,000 to Party B”.
Australian Contract Law
Contract law encompasses any laws or regulations directed toward enforcing
certain promises. In Australia contract law is primarily governed by the 'common
law', but increasingly statutes are supplementing the common law of contract most notably, but certainly not exclusively, in the area of consumer protection.
The contract law section focusses primarily on the common law of contract, with
some reference to relevant legislation. It is broadly divided into five categories:
• contractual formation
• scope and content of contracts
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Establish and conduct business relationships
• avoidance of contractual obligations
• performance and termination of contracts and
• remedies for breach of contract.
Visit Australian Contract Law for more details.
b. Dispute resolution clauses
In case of any disputes where both the parties try and resolve the dispute
themselves, or find an alternative solution instead of going to the court. There is a
mediation session facilitated by an independent mediator chosen by both the
parties. They aim at making both parties focus on resolving the dispute themselves,
or find an alternative solution, instead of going to court.
c. Termination clauses
Termination clause specifies the reasons such as why, when and how a given
party can terminate the contract or agreement. This must be agreed by all parties
during contract signing stage or the agreement. In the event of any breach of
contract or agreement, any one of the parties can terminate the contract.
d. Terminating a contract
When either of the parties decides to terminate the contract or an agreement the
respective parties will be required to formally notify the other party in written with a
given time frame of ending the contract called the notification of intent to
terminate the contract or agreement.
The termination clause will include the reasons as to why, when and how a given
party can terminate the contract or agreement would have been already agreed
upon by both the parties at the time of signing the contract or the agreement. A
party can terminate the contract or agreement if it thinks that the other party has
breached the clause/s of the contract or agreement.
e. Adjusting and updating contracts
As the contract term approaches an end, it is vital to review, negotiate and
update your contracts with customers or suppliers. There are several factors that
might change with time impacting the contract terms and conditions.
Changes in contracts can also affect the managers, supervisors and other staff.
Therefore, it is important that you communicate any changes that might impact
them.
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4.5 Dispute resolution
When negotiating a contract, it is important to pay attention to the choice of
dispute resolution mechanisms. Besides litigation through the judiciary system there
are alternative dispute resolution mechanisms. They protect both parties in case
the relationship between the parties breaks down and becomes unworkable, if
one party is not meeting their obligations, or if they wish to nullify the agreement.
The following strategies can be used in your workplace.
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Nomination of an independent party to be used in any resolution situations
Mediation and arbitration strategies
Legal processes and consequences
Exit strategies for both parties
It is helpful to consider negotiation, mediation, arbitration and litigation as lying
along a continuum. The “negotiation” end of the continuum is characterised by
values like acceptable results, flexibility and efficiency; the “litigation” end by
values like risk of unacceptable results, expense and delay, and publicity. Looked
at that way, it’s not hard to see which end of the continuum most businesses
would prefer be on.
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5
References
1. https://smallbiztrends.com/2015/06/build-lasting-business-relationships.html
2. https://www.investopedia.com/terms/b/business-relations.asp
3. https://www.legalmatch.com/law-library/article/common-clauses-in-acontract.html
4. https://www.skillsyouneed.com/ips/negotiation.html
5. https://www.workitdaily.com/business-etiquette-correct-greeting/
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