In the world of business, contracts are the lifeblood that keeps everything running smoothly. While it would be ideal if everyone upheld their obligations based on a simple handshake, contracts are necessary to hold partners, clients, and service providers accountable. As a business owner, it’s crucial to understand how a poorly drafted contract can negatively affect your business and how to rectify one that doesn’t meet your needs.
Know Who you are Contracting With
Not even the best drafted contract in the world can save you from the wrong business partner. Many businesses fall into the trap of entering into contracts with business partners without doing a proper due diligence. When experiencing the hype and excitement of a new business venture, the costs of a proper due diligence may seem exorbitant and unnecessary. However, when calculating the costs of entering into a contract with a dishonest or unqualified business partner, it may be well worth the investment.
Beware of Overly Optimistic Contracts
New entrepreneurs often fall into the trap of crafting contracts that are too optimistic. When dealing with an enthusiastic and seemingly trustworthy service provider, it might seem redundant to include provisions for missed deadlines, subpar work, or unexplained absences. However, it’s essential to hope for the best but plan for the worst. Make sure your contract addresses every possible scenario.
Avoid Ambiguous Timelines
Uncertain timelines can spell trouble for business owners. Phrases like “as soon as possible” or “as agreed upon by both parties” are far too open-ended to protect you if the other party decides your deliverables aren’t a priority. Incorporate specific dates in every contract and establish penalties for missing those deadlines.
Steer Clear of Vague Language
Vague language, much like indeterminate timelines, can harm your business. Ambiguity concerning tasks, project responsibilities, expected work quality, and payment schedules or methods can leave your business cash-strapped, without the necessary deliverables for growth, or saddled with unusable work. Although precise contract language may seem overly detailed, it is crucial for clarity. Your business contracts should leave no room for interpretation.
Watch out for those Arbitration Clauses
Business must make commercial sense! The same applies to dispute resolution clauses in contracts. It is important to know and understand the consequences and associated costs of choosing arbitration as a process of dispute resolution. There certainly are many benefits to arbitration, including shorter timelines, but it comes with a price. Simultaneously, parties often discount the advantages of mediation. Mediation can be a very handy way of resolving disputes with business partners. It is informal, less costly, and focuses on finding solutions to disputes as opposed to enforcing remedies such as claiming money for damages suffered.
Understand What You’re Signing
Admittedly, business contracts aren’t the most exciting reads. If you’ve dealt with contracts before, you might feel confident in your understanding of them and trust that the other party has drafted a fair agreement. However, never sign a contract without fully grasping its contents and implications. This is where an experienced business attorney becomes indispensable—they know what to look for in a contract and can ensure your interests are safeguarded.
By Andries Stander | Director