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Contract Review for Small Businesses: Five Helpful Tips

by Sharon Alavi-Hantman on March 23, 2009

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Lawsuits are expensive, time-consuming, and can considerably hinder a small business. Detailed, well-drafted, and skillfully negotiated contracts are worth the effort; they protect small businesses and can prevent burdensome legal battles. Below are several tips for small business owners to keep in mind when reviewing contracts such as agreements with vendors for the purchase of materials or services.

It never hurts to ask. Attempt to negotiate contract terms instead of simply signing off on a vendor’s standard agreement. Even if you have little or no leverage, do not hesitate to ask for business or legal terms that mitigate your risk or provide a better deal for you. It is sometimes surprising how much you can improve your contract provisions by just asking. A request that seems brazen to you may not actually be a significant concession for the other party. Provide compelling reasons or an explanation to justify your requests in order to increase the chances of compromise. At the very least, your inquiry will lead to a discussion that may provide insight into the other party’s interests and ability to accommodate.

Read (rather than skim) the entire contract. Often, small business owners are time constrained and do not take the time to read and understand their agreements. It is much faster and easier to sign the dotted line and hope for the best. This approach can lead to unpleasant surprises in the future. You may not be signing up for what you expect, need, or can provide. You may be unwittingly agreeing to provisions that are too financially risky. Remember that you will be legally bound to every term in your contract whether you read and understood it prior to signing or not.

Take time to think about and address potential problems
. A contract may appear straightforward and likely to be implemented without a glitch, but it takes one problematic agreement to derail a small business. Issues can be tackled more efficiently (and less litigiously) when the parties have considered them and negotiated resolutions beforehand. For example, what happens when one party fails to meets its obligations in a timely manner? The contract should specify i.) what “timely” means, and ii.) whether the innocent party receives a discount and/or has the right to terminate the contract, etc.

Define, define, define!
Every word in a contract counts. The best contracts are the least ambiguous ones. Specify time periods, dates, payment logistics, the parties’ major and minor responsibilities, and define all subjective terms to the fullest extent possible. Even if the intent of a word or sentence appears obvious, add detail so there is no room for a different interpretation. Along these same lines, do not rely on prior conversations to give meaning to the contract. Every detail discussed and orally agreed upon between the parties should be in writing.

Be innovative. Negotiating does not always have to involve dollar amounts. What non-monetary benefits can the parties offer each other to gain better terms? This can include a side service, co-promotion or marketing, partnering on a small project, or the potential for more lucrative contracts in the future. Creativity often greases the wheels of contract negotiation.

- Sharon B. Alavi
Corporate Counsel, Network Solutions

DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal advice. Network Solutions recommends that you consult an attorney if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.

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    • MMike

      That was actually a really good article, not the regular BS I see on corporate blogs.

    • MMike

      That was actually a really good article, not the regular BS I see on corporate blogs.

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    • leronimo

      To read carefully instead of just skimming through the contract is one of the most expensive lessons i've learned after signing my last employment agreement. the contract had abusive terms that I failed to notice.

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    • Johnny Pineda

      That was really good information. The fact that contracts are written by attorneys is often forgotten. Worse yet is that business owners typically aren't attorneys, or can read/understand “legal-ease”. So, even if they took the time to actually read a contract, the language can be way over their head. I would say that business owners should then have those contracts read by their own attorneys, protecting their rights, and looking out for their best interests. The hurdle it would seem, is cost. Yet business owners gamble their company's very livelihood by signing away hoping for the best. What to do? With a Pre-Paid Legal membership, business owners can have their contracts and documents reviewed for pennies on the dollar, from top rated law firms. What's top rated? AV. Don't know what that is? The highest rating a law firm can attain. How? That's just what Pre-Paid Legal does. It's a new way for the business owner and they should all know. No longer do businesses have to live through this, it's just completely 100% avoidable. Are you a business owner? Better get your Pre-Paid Legal, or continue gambling being part of the statistic that most companies face in their first five years: Failure.

      https://www.prepaidlegal.com/Multisite/Multisite?site=biz&assoc=johnnybpinedajr