As a first-time business owner, you will quickly realize that your success relies upon other people and services. However, you cannot depend upon a handshake to enforce your rights when forging a business relationship. Formal business contracts can help you avoid circumstances that negatively impact your company. Here are some insights:
The purpose of a business contract
Business owners use contracts to define the terms and expectations for the relationships they rely upon daily for their success. For example, standard contracts address:
- Employee and employer obligations
- Property and equipment leasing
- Property maintenance and repair
- Purchase and sale of supplies and services
- Project management
Contracts can also determine a business’s long-term course by defining the terms of a partnership, its purchase or sale, owners’ liability, stock and dividend disbursements, and decision-making authority.
Creating a business contract
Understanding what a contract should include can save you numerous headaches. First, every agreement should be in writing and have the legal names of the relevant parties. Next, it is necessary to clearly define the contract’s purpose, spelling out all parties’ obligations with simple and direct language to avoid misinterpretations. For example, you should list each service monthly payments covers if you plan to rent office space. Likewise, if you rely on supply deliveries by a specific date, a contract with your supplier should include that date plus any non-compliance penalties.
In addition to helping ensure your company’s smooth operation, contracts should also address the termination of business relationships that are no longer helpful. For example, your business may want to ensure that it has the option to cancel its security system contract when it fails to notify you about a break-in leading to the theft of your office equipment.
Contracts are also indispensable for resolving disputes without expense and acrimony. For example, a partnership agreement that outlines the steps for handling opposing views about spending, expansion, and investing can prevent otherwise insurmountable conflicts that could dissolve trust or end the relationship.
You can simplify the creation of a business contract by modifying existing templates to suit your particular circumstances. For example, consider investing in contract management software if your business frequently relies on independent contractors or vendors. Alternatively, you can modify an existing contract with relationship-specific details. Use a tool to extract PDF pages that allows you to change a current PDF document or remove entire sections to paste into another.
Strategies for negotiating a business contract
It is vital to ensure that your business relationships prioritize your key objectives and that every agreement you make supports your bottom line. Therefore, before entering a contract negotiation, it is prudent to review your business’s financial health, cash flow and purchase capacity. Investing in cloud accounting software can help you manage and track your accounts payable and receivable and provide valuable data to meet your financial obligations. You can also use this critical information to negotiate advantageous contract terms for your unique circumstances.
In addition, make sure to discuss contract terms only with someone with authority to enter into binding agreements and take the time to thoroughly understand that person’s goals and expectations for the business relationship. Although rushing negotiations can lead to critical oversights, thorough preparation ensures you arrive at the negotiation table with thoughtful solutions to potential stalemates that meet everyone’s needs.
Finally, conducting all negotiations in private will prevent distractions and unnecessary input that could derail the process.
Contracts are a necessary tool to help you run your company, reduce its liability and propel it forward.
ABOUT THE AUTHOR: Corinne Hammond has worked in the venture capital, corporate management and finance sectors, and understands the stress that comes with the daily grind of running a business. She developed Be Biz Minded to offer quick access to educational resources for entrepreneurs and small business owners to help them feel as prepared as possible as they work to grow their businesses.
