The idea of writing a business contract can be a little nerve-wracking for a small-business owner. What should I include? Did I leave anything out? Am I getting everything I need? Am I fully protected? But contracts are a necessity for every business. If legal mumbo jumbo tends to give you a headache, you can always seek the help of an attorney. But let's face it, attorneys cost a lot of money-money that small-business owners often can't afford to sacrifice. So what do you do when you're working on a budget but you desperately need the assistance of a legal mastermind?
Attorney Richard D. Harroch has put together the Business Contracts Kit For Dummies, a basic guide that outlines a number of important contracts. In nonlegalese, Harroch points out what's important to include in your contract, what you should and shouldn't negotiate, and how to decide what types of contracts your business needs. Here's a look at some helpful tips that could save you unnecessary headaches and high attorney's fees.
Entrepreneur.com: How do you decide which business contracts you need?
Richard D. Harroch: If you own a small business, my book goes into the different categories of contracts you need. For example, if you're still in the very early stages and you're just incorporating your business, then you're going to need some important contracts for incorporating bylaws, buy-sell agreements, things like that. If you're at the point where you're a little further advanced and you're actually hiring employees or consultants, then you'll need offer letters, employment applications and employment agreements, and the book has a number of examples of those that you can take and customize to your particular business.
Entrepreneur.com: What are the basic parts of any contract?
|"The most important thing is making sure that all the things you expect to get from the contract are, in fact, reflected in it."|
Harroch: Basic parts really include making sure you're getting all the things you expect to get from the contract. In fact, that's probably the biggest mistake people make in contracts. They don't put in all the things the other side told them they were going to do or they were going to get. For example, let's say you're in negotiations to lease some space for your small business and the landlord says, "Sure we can paint the office and put some new carpeting in." Then when you get the lease, a lot of the stuff the landlord told you he was going to do isn't in it. You just assume, as the tenant, that the landlord will do because he told you he was going to do it. If there's ever any dispute, however, you'll go back to the lease and there won't be anything there, and so the landlord doesn't really have to do anything. The most important thing is making sure that all the things you expect to get from the contract are, in fact, reflected in it.
Entrepreneur.com: What are some other contract mistakes small-business owners make?
Harroch: One is not including all the deal terms. Another is not paying attention to some of the boilerplate terms that are in there which can really affect you. A third is not having a lawyer review your contracts for important agreements. Another important mistake is not having some kind of termination rights. If the relationship is just not working out, you want to be able to exit from the agreement with a minimum of financial pain, so building some kind of termination rights if you're not happy or it doesn't work out is important.
Entrepreneur.com: How do business owners know when they need a contract?
Harroch: If it involves any kind of significant dollar amount, you should have a written contract that lays out the understanding of both parties-what are you doing, what's the other side doing, who pays what, what date is it paid by, what follow-up is supposed to happen. The kinds of contracts you often see in small businesses are service contracts-the business is going to provide some services-and [the contracts need to include] what those services are, when they have to be provided by, and what the full scope of those services is. You don't want a contract that says, "I'll do whatever it takes to get your computer systems running." That's just way too broad and leaves the small-business owner up in the air with lots of potential liability. You want to specifically lay out the things you're going to do and make it very exclusive so that there's no misunderstanding later.
Entrepreneur.com: As far as online businesses go, what contracts are important to those businesses?
Entrepreneur.com: Should you have an attorney look at every contract?
Harroch: I don't think you need to have an attorney look over every single one. For example, you'd want your attorney to review a standard sales or service contract. You'd want your attorney to look at that and put in a lot of the good boilerplate and the things that will protect you. Then as you're entering into sales or service contracts with third parties, you can make minor changes with those contracts. If you're going to make major changes, then you might want to consult your attorney again. A good attorney will give you a good template contract to start from.