Two Rules for Business Contracts
When it comes to business contracts, I have two rules. Do not write your own contracts and do not sign a contract that has not been reviewed by a lawyer.
Do Not Write Your Own Contracts
I used to work with a business manager who thought he was being frugal by finding contracts online and using them for important business deals. He was always so pleased with himself—he had a lot of business experience and thought that he knew how to read business contracts. He patted himself on the back right up until the day when his self-written contract cost the owner hundreds of thousands of dollars—all because his homemade contract was missing about dozen words.
There are expenses and there are investments, and savvy business owners know the difference. With expenses, the goal is to cut as much as possible. For example, I pay just $30 per month for my office phone through Grasshopper, instead of a lot more that for a traditional phone service. But with investments, the goal is to maximize your return. A $10,000 expense that does not produce anything is very different from investing $10,000 and getting $15,000 of benefit in return. Sometimes this return is easy to see, like when you hire an employee and can clearly see how much income having them on your team brings your company. Other times, the return on your investment is harder to see, but no less important. Insurance is a good example of this—you know there is a benefit to having insurance, but the return is harder to quantify. Another good example of an investment is spending money on high-quality contracts. The dividends this pays are from saving time and hassle, the peace of mind from knowing what your contracts really mean, and most of all, the value from this investment is the protection a well-written contract provides your company.
Do Not Sign A Contract That Has Not Been Translated By A Lawyer
Most people know that lawyers can write up contracts for their business, but not everyone knows that another service most business lawyers offer is to read and translate contracts for you before you sign them. If you haven’t ever had this done, you are missing out. It is a wonderful feeling to have someone on your side who can read contracts before you sign them and explain anything in the contract that they think you should ask to have changed and why. Often your lawyer will produce what’s called a “red-line” version of a contract which includes all of the changes they suggest for you to send back to the other company’s lawyers. Your business probably doesn’t need its own full-time attorney on staff, but you can have one on your team just when you need it for a relatively small investment.
It’s also helpful having a relationship with a lawyer for reviewing and writing contracts because eventually your business will need other legal advice. You will already have a lawyer who you know and trust who already understands your business through your prior work together.
Save some money, Hire a lawyer
A few hundred dollars of legal fees will not break the bank of a healthy company, but a mistake on a contract can. Don’t take a big risk to save a little money—rely on a lawyer for your contracts, not the internet.