Don’t want your business destroyed in a single day by lawyers?
We all feel this sensation at some point in our lives, when you are called upon to decide upon a contract to which you have not had the time to read and understand due to all the legal jargon included.
The truth is that if you make a mistake on one point, you could be financially ruined.
The disturbing reality is that…
Contract disputes cost businesses $60 billion annually. The worst of it? Most of these disputes are preventable, so what are you waiting for?
If you don’t have the right contract management, you could be operating your business while blindfolded on a motorway.
What are you going to learn in this article?
- Why Complex Contracts Are a Killer for Your Business
- The $60 Billion Question: The Hidden Costs of Poor Contract Management
- Essential Contract Navigation Tactics That Always Work
- Warning Signs Every Business Owner Should Recognise
- Construct Bulletproof Contract Protection Strategies
Why Complex Contracts Are a Killer for Your Business
Complex contracts are not just paperwork; they’re the time bombs set to blow your business wide open.
The truth is that most business owners don’t know…
Businesses spend $870 billion per year on dispute resolution. Not a single letter. Close to a trillion spent on issues that you could have prevented.
And here’s another zinger… 70% of friction points arise before a contract is even signed. What happens is that most business owners look at the wrong aspects entirely.
Instead of stressing out on sealing the deal the soonest, they should be more concerned about sealing it correctly.
The $60 Billion Question: The Hidden Costs of Poor Contract Management
Let me show you exactly what a failure in contract navigation will cost your business…
The visible costs are immediately noticeable:
- Legal fees
- Court fees
- Settlement amount
But the invisible costs are the ones that kill businesses:
Lost time: The average contract dispute takes 18-24 months to be resolved. That is 2 years that you will spend fighting instead of growing your business.
Broken relationships: Contract disputes burn important business relationships permanently. You can come out as a winner in court, but lose your valuable partnerships.
Opportunity costs: While you are fighting, your competitors will be capturing market share and increasing their businesses.
Reputation damage: These things spread like wildfire. Contract disputes cause long-term damage to your reputation.
When dealing with legal situations such as these, hiring experienced lawyers to go over your contracts before signing them can help you avoid making such expensive mistakes. If you are in the UK, P.A. Duffy & Co. are the leading solicitors in Northern Ireland.
Essential Contract Navigation Tactics That Always Work
Are you ready to master contract navigation? Here are the tactics that proven successful in protecting big businesses:
Read Everything (And I Do Mean Everything)
I know this is a no-brainer but I still find business owners signing contracts without even reading them.
What you need to do is:
- Read every word, the fine prints included
- Look up terms you don’t understand
- Be extra careful with termination clauses
- Be able to outline all your obligations and deadlines
Don’t trust anything not put down in writing. If the contract does not say so, it does not exist.
Prioritize These Key Sections
Not all sections in the contract are of the same priority. Some clauses have more weight than others as they could end your business immediately:
Payment terms: Vague payment terms are like a time bomb waiting to explode in your business. Make sure you know exactly when you will be making payments, what will happen if there is a late payment, and what the penalties are.
The scope of work: The scope of work needs to be absolutely clear. Vague scope equals scope creep, which leads to disputes and overruns.
Termination clauses: How can you terminate this contract? What are the penalties? Is the other party allowed to terminate without a just cause? You need to know these.
Liability and indemnification: Who is responsible in the event of a problem? Liability clauses will expose you to being sued and even to unlimited liability if you are not careful.
Negotiate Like Your Business Depends on It
Your business does depend on it!
The problem with most business owners is that they take the first contract they receive. That’s a huge error. Everything is negotiable and in particular:
- Payment terms and schedule
- Delivery timelines
- Liability limitations
- Termination rights
- Intellectual property rights
The other party wants to seal the deal as much as you do. Don’t be afraid to ask for changes that will put your interests in a safe place.
Warning Signs Every Business Owner Should Recognise
Don’t you want to know the danger signs that mean trouble? Check out these warning signs that should make you pause:
Unlimited Liability Clauses
If there are clauses such as unlimited liability or if they state that the other party is to indemnify and hold you harmless then you should put the brakes on. Clauses such as these will financially ruin you.
Automatic Renewal Terms
These sneaky little devils automatically renew your contract when the expiration time is due unless you give notice in a specific time. Miss the notice deadline, and you will be stuck in a contract for another term.
Broad Non-Compete Agreements
Pay special attention to non-compete clauses that are too broad. In the end, these could even keep you from operating your business.
Vague Performance Standards
Clauses that include the terms such as reasonable efforts or industry standards without going into details are asking for disputes.
Unilateral Termination Rights
Contracts that state that the other party can terminate the contract for convenience but you cannot on the same terms. In the end, you will have an unbalanced contract relationship.
Construct Bulletproof Contract Protection Strategies
Let’s see how to protect your business from the ugly face of contracts:
Establish a Contract Review Process
Don’t get sloppy when reviewing contracts. You should have a systematic process in place:
- Initial review: Do a first review of the contract and have it where the important terms are identified.
- Perform a risk assessment: Evaluate any potential risks and liabilities
- Legal Review: Qualified legal professionals should review complex legal agreements
- Negotiate: Put in place changes for terms that are problematic.
- Final Approval: Obtain final approval: Get key stakeholders to give the final sign-off before signing.
Document Everything
Keep records of:
- Contract negotiations
- Email correspondence
- Performance milestones
- Contract modifications
Documentation will come in very handy should a dispute arise later.
Set Up Contract Management Systems
Keep records of:
- Contract expiration dates
- Renewal deadlines
- Performance obligations
- Payment schedules
The average cost of a contract dispute reaches $94,000 in legal fees alone. Spending money on having the right contract management systems in place will be an investment many times over.
Build Solid Relationships
The best contracts are those between parties who trust each other. Spend time and build up relationships with your contract partners. Problems will be much easier to resolve when there is good will on both sides.
Key Takeaways for Your Next Big Deal
You should remember the following things:
Contracts are the maps to building successful business relationships. Time well invested to understand and negotiate contracts in the earlier stages will save major headaches down the line.
Never feel the pressure of signing. If someone is rushing you to sign on the dotted line, that is a huge red flag. Good deals should be able to wait for a thorough review.
Get expert help when you need it. The cost of legal review is very small when compared to the cost of a dispute.
Trust your gut. If there is something about the contract that doesn’t feel right, chances are it isn’t.
The Bottom Line
Contracts don’t need to be the things to ruin your business. With a good approach you will be able to master complex agreements.
Successful business know the value of contracts and treat it as a strategic tool. They invest time and effort to understanding them and building good management systems in place.
Remember: One well-negotiated contract will make your business. One poorly negotiated contract can break your business.
Take your time, and get it right. Your future self will be thanking you for that.