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The Mighty Pen

How to make the paper trail work for you

Artistic and indefatigable, Ken K. turned his garage-based business into a multimillion-dollar outfit. But somewhere along the way, he ran into a perilous cash crunch. When a couple of crafty investors offered to bail him out, he gave no thought to the formal documents they slid across the table. He hastily signed on the dotted line, unwittingly ceding them control of the entire enterprise. Inevitably, friction developed. Within months, those same investors fired him from the company he created, throwing him out of his own office.

Never underestimate the power of paper. Here are a few ways to make the written record work for you.

The complete dealmaker. We all know solid, written agreements can help you win lawsuits or discourage frivolous ones. It's not that oral agreements are unenforceable--they're just much harder to prove. But there's a subtler and often overlooked benefit to writing everything down. It makes you think. Putting pen to paper forces each side to be specific about its expectations and more thorough in its planning for problems. By fleshing out your deal in writing, you prevent costly and aggravating misunderstandings.

The home-court advantage. Whenever possible, try to be the one responsible for preparing the paperwork. Generally, your carefully chosen wording gives you the upper hand. Among other things, it lets you pinpoint the other side's obligations with irritating precision while leaving elbow room on your own. It lets you stack the deck with clauses that work in your favor.

Controlling the paperwork also helps you control the negotiation. It lets you set the agenda. Your choice as to the size, complexity and number of documents can facilitate or frustrate negotiations.

Your draft documents also provide a graceful approach to touchy issues. Let's say, for example, you're not sure the other side really has the right to do something. Ask them to represent that they do, in writing. If they will, terrific; if they won't, at least the problem is now on the table.

Understand it. The paperwork may be filled with incomprehensible legalese set in subatomic type. You may have almost no bargaining power. Still, read it anyway. For one thing, it may be inaccurate. Also, formal documents lay out the rules. Know them. For example, that time-deposit agreement may let the bank automatically redeposit your money unless you notify it otherwise within a certain time period. It's a pain to calendar a notice two years in advance, but if you don't, you may be stuck, according to the contact.

Of course, if the deal is crucial, you'd better make it your business to understand it. That means you ask a lot of questions, read everything carefully and, above all else, get some help from a banker, lawyer, accountant or other appropriate professional. Otherwise, as Ken K. did, you'll learn about the power of paper the hard way.

Keep good files. Finally, make it a habit to take accurate notes of events and conversations. For clarity, use differently colored inks when recording different conversations. Respond promptly to any inaccuracies in correspondence you receive. Be sure to hold on to all versions of paperwork. Keep originals of important documents. This not only fine-tunes your bargaining, but positions you well in case of a lawsuit (unless, of course, you're the one with the file cabinet full of self-incriminating "smoking guns"). Learn from Sam Goldwyn. When his secretary asked him whether she could throw away files that had been inactive for 10 years, he said, "Go ahead, but make sure you keep copies."


A speaker and attorney in Los Angeles, Marc Diener is the author of Deal Power: 6 Foolproof Steps to Making Deals of Any Size (Owl Books/Henry Holt).You can reach him at MarcDiener@aol.com

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This article was originally published in the March 2000 print edition of Entrepreneur with the headline: The Mighty Pen.

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