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How Contracts Can Protect Your Assets from Risky Business

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For business owners, contracts are a way of life. Whether you’re working with new or repeat vendors, a clear, equitable contract is a must. The main focus of the contract should be to protect your business from risks and set clear goals, leaving no room for interpretation regarding deliverables, payments, and expectations. For new business owners looking to learn the ins and outs of contract creation and negotiation, this guide from the turtle shell covers everything you need to know.

 

Creating a Contract

Here are five important steps to follow when creating your business contracts:

Step 1 // Always Have Them in Writing

While you may think this goes without saying, it is not uncommon for parties to verbally agree to terms and not have written contracts. While working with vendors and suppliers in good faith represents the strength of your professional relationship, as reported by HG.org not having a written contract leaves room for interpretation regarding expectations, deliverables, and payments. Moreover, without a written contract, there is no document to refer to in times of disagreement.

 

Step 2 // Keep them Simple

A well-written contract will include information related to all important aspects of the agreement in simple, concise language. Yes, some legal terms will be used in the contract, but you should keep their use to the minimum, especially if you find them confusing yourself. Additionally, having a concise contract leaves little room for misinterpretation by parties regarding expectations.

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Step 3 // Include Payment Expectations

As reported by PSOhub, depending on the scope of work consider following a time-based or project completion-based payment schedule. Additionally, include clauses for penalties on late payments and situations where deliverables can be withheld due to payment-related disputes.

Step 4 // Add a Confidentiality Clause

During the project, others may have access to private data regarding your organization. Including a confidentiality clause will prevent the sharing or use of the data beyond the scope of the contract, and protect your business from unforeseen circumstances. 

Step 5 // Mention Steps for Contract Termination

Contracts are either terminated mutually or at the behest of one of the parties. Hence, include steps covering each of these scenarios. For instance, consistently missed payments, fraud, and breach of confidentiality can be grounds for contract termination.

 

Here are three types of software you should use to create good business contracts:

 

  • Accounting Software:  Business accounting software can be used to generate accurate financial reports regarding business performance. Analysis of these reports serves as the basis for creating a payment schedule to ensure business cash flow remains positive every month. 

 

  • Logo Creator:  Your business name, address, and logo are three key elements that need to be included on contracts, invoices, and all business-related documents. If you need a new business logo, use an online tool that provides various customizable templates to choose from.

 

  • Contract Management Software: As a business, you’re bound to have multiple active contracts simultaneously. Managing these manually is bound to cause errors and delays. By using contract management software, your contracts can be digitized, seamlessly shared among stakeholders, and protected with encryption. 

 

Negotiating a Contract 

Contracts often undergo at least one round of negotiations before being signed. During negotiations, your goal should be to protect your business's best interest and set mutually agreed terms.

Research Before Negotiating

Learn as much as you can about the organization you’re negotiating with. This includes their past performance, financial standing, customer reviews, and more. If others in your network have worked with them before, gain insights on what it's like to work with them and how to get the best out of negotiations. 

Be Professional During Negotiations

Do not let your personal feelings regarding the person sitting on the other end of the table influence decisions you make regarding the contract. Whether it be a long-term client or a family member, it’s best to be stern regarding your expectations and make decisions in the best interests of the business.

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Plan Compromises in Advance

Whether it be flexibility in payment amounts, contract duration, or deliverables, make a list of items you are willing to compromise on and the extent of leeway you can provide. Compromise is a crucial part of negotiations allowing both parties to put forth their best interests and come to a mutually agreed solution.

Hire Professionals for Negotiation

Having an attorney by your side will provide some much-needed guidance during the negotiation process. Additionally, they can spot potential red flags and ensure that your business is protected at all times.

 

Benefits of a Contract

The process of contract creation and negotiation is lengthy and time-consuming, but is important for the following reasons:

Contracts Are a Record of Commitments 

Contracts are legally binding documents i.e. the terms agreed in the contract have to be fulfilled by the mentioned parties, or else legal action can be taken to claim damages or compensation.

Contracts Protect Your Business from Conflicts

Based on negotiations, expectations for payments and deliverables are clearly defined in the contract. Hence, at no time can a party have an unjust reason to not meet mutually agreed goals and honor the contract.

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Contracts Save You Money

By including an arbitration clause, all disputes will be solved by the appointed arbitrator. Compared to filing a court case, this method will save you valuable time and money.

 

Managing contracts is one of the major responsibilities you’ll handle as a business owner. Using the insights provided in this article, you can be confident in creating solid business contracts and having successful negotiations.

 

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Emma Grace Brown lives her life by her rules; and it works! When she's not snuggling puppies, Emma promotes female empowerment through her website. Her mission is to help those who live with self-doubt to realize they don't have to mold themselves to conventionality.

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