Contracts and agreements are the lifeblood of your business. They allow you to make money, secure services, and are a vital tool in growing your business safely. Which is why it’s both surprising and disappointing how many businesses handle their contracts poorly. From avoiding contracts altogether to creating confusing or defective agreements, some businesses manage to do themselves serious harm from mismanaging what should be a relatively straightforward but extreme important element of their business.
In this three part blog series, we’re going to tackle the most common mistakes people make regarding business contracts. These mistakes can easily cause embarrassment, cost business opportunities, and create serious and expensive problems. Each entry will cover one of the biggest and most common mistakes involving contracts, why such mistakes are a bad idea, what to do about avoiding these costly errors.
So with that established, let’s begin with…
Mistake #1: Avoiding Contracts
A surprising number of businesses prefer to avoid contracts completely. They would rather do business with a handshake deal or some sort of loosely defined “verbal agreement” between parties.
The most common reasons I hear from businesses doing this are: (1) it’s too expensive to have a contract drafted; (2) I don’t want to put the deal in jeopardy by insisting on a contract; and (3) I need to get this deal done quickly and don’t have time to deal with a contract.
There are serious problems with all these reasons.
First, having a business attorney draft a basic contract will cost anywhere from a few hundred dollars to maybe a couple of thousand dollars, depending on the complexity. Compare that cost to the tens of thousands or hundreds of thousands of dollars it may cost your business if a contract goes wrong and you are forced into a lawsuit. Even if most of your agreements have worked without a written contract, it only takes one problem to put your entire business in serious financial trouble. This is especially dangerous territory for starting or small businesses, which often lack the ability to absorb large losses due to contract problems.
Second, a good business attorney understands that written contracts are a tool for getting deals done and should not put up road blocks. Written contracts are very helpful for clarifying the terms of a deal, protecting the interests of both parties, and promoting mutual understanding of the deal itself. Good contracts define important terms and responsibilities clearly and make sure both sides are on the same page. Without a well-drafted agreement, your business is inviting misunderstandings. I have seen many disputes arise because the two sides didn’t have a written agreement and had a different understanding about some important part of the agreement. Furthermore, most parties in a business agreement will not retreat from a contract and at least some of those who do aren’t the sort of people or organizations you wanted to work with anyway.
Third, drafting a contract does not need to take a long time. Yes, it will require some effort because you will need to review all the terms of the deal, but you should be taking the time to do this anyway. Many business attorneys can put together an agreement in only a few hours as long as the business owner is providing all the necessary information. Even very complex contracts and agreements can be done relatively quickly—and such complicated or sophisticate arrangements especially need clear and well-crafted written contracts. Rushing through a deal without a contract is likely to result in a misunderstanding and possibly litigation.
So there we are with why you need contracts in your business dealings. In part two, we’ll look at one of the biggest mistakes people make in forming their contracts.