1Most business owners know that a contract based on just a handshake and a promise is a recipe for disaster. A well-written and thorough contract is absolutely necessary to protect your business from unforeseen consequences. To make sure your business is protected, here are ten tips you should consider when “closing the deal.”
- Get it in Writing—No Really, Get it in Writing – You should always get your contract in writing, and make sure it’s signed by all the parties involved. While verbal contracts are usually enforceable in most courts, your case will quickly devolve into a “he said, she said” scenario. Written contracts are always less risky because they actually spell out not only your obligations, but the obligations of the party you’re contracting with.
- Make Sure Payment Terms are Included – Without clear payment terms, you’ll have no idea how or when you should get paid. Always make sure to specify when payments are due, who is paying, and any conditions for payment. Are payments going to be made by personal check, cash, certified check, or wire transfer? Whatever your choice, make sure to specify the payment terms.
- Identify the Details, Because Details are Important –Every contract should include all the rights and obligations of each party so there’s absolutely no question about who was required to do what. If your business practices change after signing the contract, don’t be afraid to update the contract ever now and then to reflect how you actually operate with the party you’ve contracted with. This keeps everyone on the same page, and it keeps you protected.
- Always Identify the Parties Correctly – You’d be surprised how many times contracting parties don’t identify themselves correctly, or even, don’t identify the correct party to the contract. It’s important to properly name the contract’s parties so it’s clear as to who is actually bound by the contract. If the parties are business entities, it’s a good idea to identify them by the proper corporate name, like “Mike’s Pizza, LLC.” If your agreement with Mike’s Pizza, LLC never refers to the company, but instead refers to just “Mike,” you may find yourself with a completely worthless contract.
- Build in Dispute Resolution– Let’s face it, disputes naturally arise over contracts. To avoid the expense of court and attorneys, agreeing to mediate or arbitrate a contract dispute in advance may resolve your issues faster, and it might save you money. Agree in advance to binding arbitration, or at least mediation, to get both sides to sit down at a table and hash it out.
- Discuss Contract Termination – Diamonds are forever. Contracts, not so much. You should know that most contracts eventually come to an end, and it’s your job to describe how that end takes place. Most contracts should set out if the parties can terminate at any time or only if the contract is breached. You should also consider requiring that the breaching party receive notice of their bad deeds, and an opportunity to cure the breach. This may prevent disputes before they even happen.
- Pick a Place to Resolve the Dispute – Contracts can involve parties from different states, and you don’t want to be stuck litigating your dispute in Alaska if your business is located in Florida. To avoid going to trial, taking depositions, and generally spending time in Alaska, make sure you include a clause that keeps any legal matters in your state and county.
- Make Sure You’re Negotiating With the Right Person – Always find the decision maker when negotiating. If the person you contract with doesn’t have the authority to act on behalf of his or her company, then you may end up with a contract that’s not worth the paper it’s written on. To jump up the corporate ladder and make sure you’re speaking to the right person, see if you can get to the gatekeeper of the contract at the beginning of the process.
- Keep it Simple Stupid – Contracts don’t need fancy legal language like, “the party of the first part contracts with the party of the second part.” Legalese is the death of contracts, and it just frustrates everyone involved. Instead, use simple language that everyone understands or language that’s industry specific. Make sure a 5th grader could easily read and understand the contract.
- Confidentiality is Important – If your contract allows the other party to access your private information, you absolutely must include a confidentiality clause. This will prevent the other party from telling the world about your important and private business information. If this provision is breached, you can even build in a set amount of damages per breach, to punish any party to the agreement that blabs when they shouldn’t.
Whether your business transaction is a $10 million deal or a $1,000 per month commercial lease, making sure you have an airtight contract is important. If you follow these tips and seek experienced legal counsel when an agreement goes beyond your expertise, you should be on the road towards a successful business relationship.