As a small business owner, creating contracts is beneficial anytime you strike up an agreement with another business or individual. Contracts ensure both parties are on the same page and that expectations will be met throughout the business relationship. Forgoing a contract is one of the biggest legal mistakes you can make as a small business owner. Even if you're new to entrepreneurship and you're just finding your way around, take the time to learn about contract creation and negotiation so you can shield your business from legal risk. In this article presented below by the Ronald J. Fichera Law Firm, you'll learn the basics of business contracts.
When Are Contracts Necessary?
Not every business agreement needs to be written up in a formal contract. For many discussions, a simple email or verbal agreement is fine. However, BusinessCollective recommends having a contract for every new business relationship you enter into. Whether you're starting a business with a close friend or selling products to customers online, create contracts to govern those relationships. Covering all of your bases with contracts will ensure your business is well-protected regardless of what happens.
For example, creating a contract before onboarding a new client will give them a chance to agree to your payment terms. If they fail to pay you on time, you now have a written agreement stating that they owe you interest on the overdue amount. This alone will encourage clients to pay faster. While you're at it, be sure to establish an efficient invoicing process so you can get money coming in more quickly. Look for a service that provides a free invoice generator and offers customization options to create branded invoices.
The Basic Elements of Business Contracts
A business contract typically contains a few basic elements:
- Contractual offer
- Contract acceptance
- Signatory awareness
- Contractual consideration
- Contractual capacity
- Contract legality
These elements ensure that a contract is enforceable as a binding legal document. Ironclad explains that if just one of these elements is missing from your contract, it may not be enforceable at all. While these elements contain a lot of legalese which can be confusing to new entrepreneurs, learning your way around each is a simple Google search away. In short, contracts must include an offer that is presented and eventually accepted, and both parties must know exactly what they're getting into.
Negotiating Your Contracts
Before you and the other party can come to an agreement on a set of legally binding terms, you'll likely enter into a negotiation. Negotiating a contract is the process by which both parties seek favorable terms while minimizing their risk. Be prepared for anyone to negotiate a contract you present to them. For example, Tony Robbins encourages employees to negotiate contracts to ensure they find a comfortable fit at their new company.
Understanding your own business is essential for successful negotiations. For example, by evaluating your business cash flow trends, you may discover that you need to ask your vendors for more flexible payment terms. Look for good cloud accounting software for your business so you can stay on top of your finances. With all of your financial information on one platform, you'll be able to access real-time insights that will prove invaluable to your negotiations.
Remember to keep the other party's interests in mind when you're negotiating. This is not a competition. Rather, negotiating a contract involves seeking to understand the other party and ensuring you both walk away feeling satisfied with the agreement. A good contract can be an excellent way to preserve a friendship in a business relationship. State the terms of the contract in clear, unambiguous language. Don't try to fight for the upper hand. By playing fair and trying to land a mutually-beneficial agreement, you'll forge a long-lasting professional relationship that will offer far more in return over the long run.
Don't overlook the importance of business contracts. Even if you're new to business ownership and the idea of writing up a legal contract is completely overwhelming, take the time to learn the ropes. Creating and negotiating contracts, and using an efficient invoicing system, is an essential business skill that you cannot afford to neglect!
Are you looking for legal advice? RJ Fichera Law Firm can help with strategic business planning, including legal organization and business structuring. Call today for a free consultation. 610-768-9255
This article was provided by Lucille Rosetti, a frequent contributor to our Blog, and brought to you by the Ronald J. Fichera Law Firm, where our mission is to provide trusted, professional legal services and strategic advice to assist our clients in their personal and business matters. Our firm is committed to delivering efficient and cost-effective legal services focusing on communication, responsiveness, and attention to detail. For more information about our services, contact us today!
This is not tax advice and should not be construed as such. Please seek professional tax services for more information and advice that will apply to your specific tax situation.