Just what does a business contract entail, and why should you have one?
“It’s always more expensive to fix a problem on the backend than it is to do things right at the outset.”
Whether you have an established business or are just starting out as an entrepreneur, it is important to have a core set of solid business contracts when partnering with other entities and laying out your engagement with customers or clients. To protect the interests of all parties, business contracts are mutually beneficial, because they set expectations to ensure everyone is on the same page for the duration of the project or engagement.
6 Reasons Why You Should Have A Business Contract
Business contracts also detail what will happen if something goes wrong. If you’re still on the fence or not sure whether you need one, here are 6 reasons why a business contract is important to protect your business.
1 – A business contract outlines the who and what of the agreement
Your contract should name the parties involved in the business relationship. It should also detail exactly what has been agreed upon between the parties. It covers how they interact and specifies the parameters around which they communicate and interact with third parties. This ensures both parties come into the partnership on level footing, and protects both sides from any surprises down the road. A business contract also fosters professionalism and officiality.
Practical Tip: As a business owner, if you have a business entity like a corporation or LLC, you want to ensure that you are entering into your contracts as your business, not yourself personally. Even when you sign your contracts, you should sign as the business representative, not in a personal capacity.
2 – It details the length and scope of the business relationship
A well-written contract ensures clear parameters for the business relationship, either with business partners or with consumers who represent your customers or clients. Knowing when a project begins, how it is delivered, and in what timeframe, are keys to a mutually beneficial business relationship. Having a clear project scope is paramount to success in any business venture.
A project scope ensures that each activity, task, and deliverable are accounted for. This eliminates confusion as to who is working on what and when. Any deviation from the project, like issues around scheduling and budgeting or adding additional requests to the project–also known as “scope creep”– can be avoided with a clear and concise contract. Scope creep can have a detrimental effect on the project timeline…not to mention your bottom line.
Having these parameters in place provides a mechanism for extending the relationship. In other words, a good business contract that covers both parties fairly solidifies the potential for a future relationship. When everyone knows what to expect and the project ends successfully. Each entity has positive feelings and eagerness to work together again in the future.
3 – A business contract clarifies financial expectations
Let’s be real. Yes, we love what we do and we want to help others. We also want to get paid.
A solid business contract details the financial aspects of the project. This way, each party involved understands when payment is expected, how it will be delivered, and what happens if payment is not made in a timely manner.
A business contract should include the following key monetary points:
- Who is responsible for payment
- How monies are to be paid
- When monies are to be received; and
- Benchmarks and triggers for payment
Your business contract should also indicate the proper protocols should there be a breach or violation of the contract, such as if payments are late or deliverables are not adhered to in a timely manner.
4 – It eliminates misunderstandings and miscommunications
Gone are the days when a simple handshake solidified business relationships. A strong and easily enforceable business contract is important. Why? Because it clearly gets everything in writing and cannot be changed unless both parties agree and sign.
GET. IT. IN. WRITING.
Protection for everyone involved is essential. With clear and concise parameters, the project is likely to go much more smoothly.
A business contract is an at-a-glance reference that details expectations and eliminates potential issues that could delay the project. This saves time, conserves resources, and eliminates aggravation.
5 – Make sure it outlines the conditions for terminating the contract
No one ever goes into a business partnership with the intention of being unable to fulfill an agreement. However, sometimes these things happen. A good business contract includes the terms and conditions under which the contract can be terminated, and the remedies to which each party is entitled if an agreement has to be terminated.
If the last few years have taught us nothing, it is how important it is for your contracts to contemplate next steps when dealing with unforeseen circumstances. A force majeure clause – a provision within the contract that relieves parties from their obligations should something beyond their control occur (like, I don’t know, a global pandemic) – is an integral part of any contract.
6 – A good business contract will strengthen your business relationships
People want to work with those they trust. What better way to foster a sense of trust than with a mutually beneficial agreement? A business contract in place is important to your current project and lays the groundwork for potential future business.
When partnering with companies or individuals that pay on time or deliver what they say, when they say they’re going to, we naturally want to do business with them again. A contract can build trust, which ultimately allows you to build and grow your network. Word of mouth is still an indispensable marketing strategy.
Why a business contract is important
There’s no doubt that getting it in writing is critical for your business protection and growth. The best way to avoid unforeseen problems is to have contracts that meet your company’s needs and are built for growth.
If you’re looking to give your business that professional edge, Hughley Smith Law can help you create a core set of your own, unique, contract templates. Additionally, The Legal Pad can help you protect your growing business even if you don’t have a full legal budget. With industry-specific contract templates, you can tailor to your business needs. You’ll be better able to protect yourself and your business.
If you’re working hard to build your business and create a legacy for your family, protecting your interests is key. Business contracts can alleviate issues that may arise if you don’t have protections in place.
You want to protect what you’re working so hard to build. Regardless of the stage of growth you are in with your business, it is crucial to have contracts and agreements in place to succeed and grow as an entrepreneur. Because what’s the point of building a 6- or 7-figure business if you’re not going to protect it.
Nothing in this article constitutes legal advice nor forms an attorney-client relationship
between the reader and Hughley Smith Law.