As a lawyer for small businesses, one area where I often see business owners get overwhelmed is with their contracts. Below are five common contract mistakes that business owners make and suggestions on how to avoid them going forward.
1. The contract is not in writing. I am a bit of a broken record when it comes to this – get it in writing, get it in writing, get it in writing. Without a written contract, it can be very difficult to determine what was actually agreed upon in the first place. For more information on why every business needs written contracts, click here.
2. The contract is not negotiated. Often when a small business owner receives a contract from another business or service provider, they think that is the final agreement. It’s not! If the agreement does not say what it should, do not sign it. Although not all contracts are negotiable, a lot of them are. And it never hurts to ask. Explain the reasoning behind the changes sought and this will open up the discussion. Often, the other party will make the changes or at least find a way to make it palatable for both sides.
3. Misunderstanding the contract. I see this a lot. A business owner is not even sure what certain provisions in their contract mean. I admit that to the untrained eye, legal agreements can be difficult to understand. But that does not mean they should be overlooked. If something in a contract does not make sense or is not clear, revise it or find a lawyer who can help (see mistake number 5, below). It is never a good idea to sign a contract that is not understood.
4. The contract is pulled from Google. I get it. It’s easy to Google “graphic designer contract” to find a template to use for a graphic design business. That doesn’t mean it’s a good idea. The risk is that there are so many unknowns. Does the business owner understand what the agreement actually says (see mistake number 3, above)? Was it written by a lawyer or a non-lawyer? Is it meant for a certain industry? Was it the final version of the agreement or was it a prior draft? What jurisdiction was it written for? My questions could go on and on. It’s ok to use Google to research a certain point or provision of an agreement in order to understand the meaning behind it, but there are too many risks with using an entire template that is found on the web without sufficient background information.
5. Not seeking help. Often small business owners feel as though they need to do it all on their own or are too busy to seek help or that a lawyer will be too expensive. The time that it takes for a small business owner to draft and edit a contract will take much longer than it will take a lawyer to do it. It is likely a better use of a business owner’s time to delegate this task to a professional. Then the business owner can focus on revenue generating activity and get back to what they do best. Not only that, but having a lawyer draft a contract provides the client with peace of mind knowing that it has been drafted by a highly trained professional who has covered off all of the “what ifs”.
What do you think? Are there any other challenges that you have with your legal agreements? Let me know in the comments or reach out to me directly here. I would love to hear from you.