Business Contracts: What New Owners Need to Know

Photo from Tima Miroschnichenko (Pexels)

An often overlooked aspect of starting a business is how much legal ground needs to be covered in the early days. While following appropriate guidelines for your company’s licenses and permits, it’s also important to draw up legally binding documentation for all business agreements. Learning how to create a strong business contract is essential for protecting your organization’s interests.

Understanding Contracts and Their Purpose

Business contracts keep parties on either end of a deal accountable to each other. They set the terms of agreements and establish what’s expected of both parties. They also detail what consequences or contingencies take place when either side breaks its end of the arrangement. For example, if a contract states that an artist will generate a logo within a week for an agreed-upon price, the contract may also include price adjustments if the artist misses their deadline or licensing agreements preventing the client from using the completed work without paying. 

It can be difficult for an entrepreneur to collaborate with others; surveys revealed nearly a third of people report starting their business with the purpose of being their own boss. Keeping every aspect of an agreement detailed in writing can mitigate much of the stress and uncertainty associated with working with others. It also minimizes any damage that your company may sustain due to personal disagreements.

Creating a Strong and Fair Agreement

There are many facets to consider when making sure your contract is as close to perfect as possible on a first draft. The document should be mutually beneficial, giving the other party a reason to do business with you. It should also be as detailed as possible to eliminate any loophole either party can exploit. For instance, vague wording like “to be paid at a later date” can make payment obligations difficult to argue in court.

Make sure to be as specific as possible. While there are a variety of contract templates online, they’re not likely to be as focused as the one you’d generate yourself. A marketing professional will need different protections and terminology than a carpenter, so even basic employment contracts will need to be suited to their individual purpose. In other words, use these templates as a jumping-off point for your contracts; tailor them as necessary to the professional you’re hiring. You may also want to have a lawyer or legal professional look over any contracts you’ve created on your own to ensure that everything is legally sound.

Negotiating and Implementing the Contract

With an initial draft readied, negotiations can begin. Each party should go through the contract line by line when identifying which changes need to be made. This is the time to close loopholes, tweak bits of the deal that no longer seem fair, and make sure everyone has the benefits and protections they need to comfortably make the deal.

A third-party arbitrator is practically essential when creating this document. An unbiased individual can look at the terms and identify which ones are predatory, poorly articulated, confusing, or absent without the influence of their own interests. It also levels out the power dynamic between an employer and employee to have a neutral party in the room.

Before finalizing any agreement, it’s important to be attuned to your company’s financial health. Using an integrated invoicing tool, you can know at a glance what your company can afford to spend or lose in a given contract, or what specifically it needs to gain. The ability to digitize and automate payments and charges also relieves a lot of the stress of running the business while simultaneously drawing up these documents.

You don’t need to be an expert to understand the importance of business contracts. Executing the proper research and accepting help when you need it will make sure your arrangements are legally binding and mutually beneficial.

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Article courtesy from Naomi at LifeBasedBusiness.net

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