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10 Contract Mistakes Small Businesses Should Avoid

10 Contract Mistakes Small Businesses Should Avoid

(Note: This post was initially published on LinkedIn, and the following iteration is a syndicated and updated version of the same.)

#1. Relying on Handshakes: The Pitfalls of Oral Agreements

Believe it or not, small businesses routinely enter agreements on a handshake without making a contract at all.

The fact is oral agreements, even between friends and family, are rarely upheld by courts. It’s 2024, people. A well-drafted contract avoids uncertainty and ensures business continuity.

#2. Avoid Using Generic Contracts

Avoid using generic or boilerplate contracts from dated, irrelevant or non-geo specific sources like Google.

Understandably, small businesses want to save money, but cutting corners with generic contracts from possibly unreliable sources can be disastrous. Find trustworthy contract services which can professionally draft accurate, precise, and up-to-date contracts.

#3. Understanding and Applying Applicable Laws

Don’t ignore the law that’s applicable to the contract.

Refer to the relevant case law, statues and regulations in the contract’s terms and conditions. Seek subject matter contract experts who know the pertinent law. That’s critical to your defense in the event of a dispute.

#4. Craft a Contract Carefully

Take the time to carefully craft a contract.

Unfortunately, small businesses typically lack the time, resources, or expertise to draft their own contracts. Yet a single poorly drafted contract may undermine the effort you’ve put into your business.

An investment in contract support, for example creating templates, will facilitate first-class contracts.

#5. Review Contracts Thoroughly

Small business owners often fail to take the time necessary to comprehensively read contracts, and miss potential issues, before signing them.

Consequently, a small business owner may end up paying too much, purchasing too little or ending up in a foreign jurisdiction if the relationship goes bad. Working with contract professionals to carefully review agreements can avoid these consequences.

#6. Keep Yourself Out of Contracts

Don’t insert yourself into the contract.

We’ve found that small business owners unnecessarily include themselves in contracts when it’s not needed or required. That’s simply inviting liability on your personal assets.

Let’s say you’ve created a corporation or limited liability company to protect your small business from potential liability. But, being a proud entrepreneur, you’ve decided to include your name, individually, in the text of a contract.

You’ve foolishly risked inviting personal liability in the event of a dispute. A contract professional would have spotted – and avoided – that mistake.

#7. Anticipating Breach of Contract

Small business owners don’t always have the time to consider what constitutes a breach of contract. A lot can go wrong in a business relationship.

A contract that anticipates conditions for misconduct, non-performance, poor quality, late delivery, etc., and defines what recourse is available, is just smart deal making. Small business owners often lack the internal capacity to consider worst case scenarios before drafting and negotiating contracts.

That’s where we come professional contract management service providers come in. They create contracts that define relationships and address remedies for potential disputes.

#8. Omitting Critical Contract Terms

Small businesses have enough on their plates to know the ins and outs of contracting.

Speaking of “outs”, they routinely omit critical contract terms. And if it’s not in the contract, you’ll either lose on the face of the agreement or spend a tidy sum on litigation trying to convince a judge that a missing term should just reasonably be assumed.

You can roll the dice or turn to contract experts who can provide you with a playbook to ensure that no important terms are ever missing from your contracts, no matter the type.

#9. Ending Contracts Amicably

Give your small business an easy way to end an unhappy relationship.

Small business owners are surprised to discover that a contract doesn’t have to be an invitation to a week in court. Far from it. Business owners aren’t clairvoyant. They may enter commercial agreements and later find a better consultant, lower priced technology, or cheaper lease.

A comprehensive contract, the sort of contract providers routinely prepare, should provide the parties notice and an opportunity to terminate because it makes sense to do so. No need for Fight Club!
Contract exit strategies are often overlooked by small business owners, who view contracts through the lens of litigation.

#10. Resolving Contract Disputes

Finally, consider how and where contract disputes may be resolved. Thought we’d overlook that one, didn’t you?
Since a contract is a legally enforceable document that seeks to protect obligations, the agreement should include the manner in which disputes may be heard.

For small business, often alternative dispute forums like arbitration or mediation are preferable since they can be faster and less expensive than court.

And we know small businesses who have inadvertently ended up in foreign venues to resolve disputes because they failed to review the relevant provision. Not a pleasure trip.

End Note

A carefully drafted, negotiated, and executed contract may be priceless but it doesn’t have to be expensive. Small businesses that lack resources for critical contracts can rely on professional contract services.

They are an invaluable tool for overburdened small business owners, ensuring all parties know their rights and obligations in a commercial relationship in advance to avoid disagreements.

Small business owners are surprised to discover that a contract doesn’t have to be an invitation to a week in court. Far from it. Business owners aren’t clairvoyant. They may enter commercial agreements and later find a better consultant, lower priced technology, or cheaper lease.

A comprehensive contract, the sort of contract providers routinely prepare, should provide the parties notice and an opportunity to terminate because it makes sense to do so. No need for Fight Club!

Contract exit strategies are often overlooked by small business owners, who view contracts through the lens of litigation.

#10. Resolving Contract Disputes

Finally, consider how and where contract disputes may be resolved. Thought we’d overlook that one, didn’t you?

Since a contract is a legally enforceable document that seeks to protect obligations, the agreement should include the manner in which disputes may be heard.

For small business, often alternative dispute forums like arbitration or mediation are preferable since they can be faster and less expensive than court.

And we know small businesses who have inadvertently ended up in foreign venues to resolve disputes because they failed to review the relevant provision. Not a pleasure trip.

End Note

A carefully drafted, negotiated, and executed contract may be priceless but it doesn’t have to be expensive. Small businesses that lack resources for critical contracts can rely on professional contract services.

They are an invaluable tool for overburdened small business owners, ensuring all parties know their rights and obligations in a commercial relationship in advance to avoid disagreements.

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