I’ve had the opportunity to work with many small business owners and while some people have their legal game in order when it comes to contracts, there are others who well, let’s just say need a crash course in contracts. Here are the top five common mistakes I see small business owners make with their contracts.
1. NOT PUTTING ANYTHING IN WRITING.
It makes me cringe every time I hear a creative professional entering into a new business relationship WITHOUT a contract. At the most basic level, one of the major benefits of having a contract is that it helps clarifies expectations between the parties and avoid any misunderstandings. For example, if Jim and Jane agree that Jim will paint Jane’s house for $500 – at first glance, this seems clear enough. But when we dig in deeper, we realize, there are still a lot of unknowns. For example, who is responsible for purchasing the paint and supplies? Is that included in the $500 cost? When will the work be completed? Will Jim be painting the inside or the outside of the house or both? Having a contract creates a platform to think through and clarify these terms so as to avoid any problems in the future.
Also, in the event the relationship goes south, (and unfortunately, they often do), a document that clearly spells out each party’s rights and obligations can be huge a lifesaver in the case of confusion or disagreement. Memories fade and often times we can’t remember what we agreed to years before.
Although in some circumstances oral contracts can be valid, they are more difficult to prove in the event that you’re ever standing before a small claims court judge. My experience has been that a judge will be very reluctant to uphold an agreement that isn’t it writing.
So the lesson here is get your agreements in writing!
2. COPYING AND PASTING FROM A CONTRACT
YOU FOUND ON THE INTERNET.
Ah – the infamous copy and paste approach to contract drafting. We know it all too well. You have sent out a client proposal and the client wants to move forward and has asked you to send the contract over ASAP. Sheer panic begins to set in because you think “holy moly, I don’t have one and I don’t have any lawyers on speed dial who can help. I can’t afford to lose this client!”
My recommendation is to have a set of contracts on hand for when the need arises. Whether you purchase a set of template contracts or have one customer tailored for you, having your contracts ready to go will save you a lot of time, frustration, and that client!
3. NOT READING A CONTRACT
I know, I know… who reads the fine print, right? You’d much rather be focused on creating that lovely thing of yours than trying to decipher those legal terms – which might as well read like hieroglyphics. But you’re working hard to build your business. Don’t be lazy when it comes to the legal stuff.
4. SIGNING A CONTRACT WITHOUT UNDERSTANDING IT
A close runner up to mistake #3, is reading a contract, not understanding it, but signing it anyway. As you can tell, I’m an advocate of having a basic legal understanding of the terms of a contract. Find someone who can explain the terms to you. You may not know what rights you’re giving up or what obligations you’re agreeing to undertake.
5. FAILING TO NEGOTIATE TERMS THEY DON’T LIKE.
All contracts are NEGOTIABLE. Just because someone hands you an official looking form and asks you to sign it, it doesn’t mean you have to under the terms they’ve given you. Albeit, there are some contracts that are really difficult to negotiate. (Ever try to negotiate the terms of a contract of a bank loan? You may not be very successful getting them to budge!) But if a term doesn’t float your boat, know that you can at least attempt to negotiate it.