They’re not exactly a sexy topic, but contracts are super important when running a business.
No matter what business you are involved in you will undoubtedly find yourself having to negotiate and review legal contracts at some point.
They can be overwhelming to read and understand, especially when they are several pages long and full of legal jargon.
And you may not be inclined to seek legal assistance.
We get that!
So, this article sets about providing you with the tools you need to read and negotiate contracts like a legal expert.
First, some not necessarily legal advice: There’s always room for negotiation.
Take a cue from Cher Horowitz in “Clueless” – even bad grades are negotiable.
Until its signed, the terms of a deal are not set in stone just because someone sent you a proposed agreement.
For example, maybe there’s no wiggle room on price, but can the other side give you a discount for their goods, a special credit, or something else?
Quality alone time
Even though contracts can be long and difficult to understand, it is critical that you read them, and sometimes multiple times.
We recommend that you do so alone.
Because if you are alone, you will not feel rushed and will be less likely to make mistakes.
And above all, always remember that you are the one spending the money.
So don’t allow anyone to pressure you and always know exactly what you are signing.
If there are words that you do not understand, take the time to look them up, or try to negotiate changing the language so that it is understood by everyone involved.
Don’t feel that any contract must be full of legalese.
Simple is always best…
So don’t be afraid to request that a contract be stated in simpler language where you feel it is overly difficult to understand.
Ambiguity or unclear language in a contract can cost you time and money and damage your business.
When it comes to contracts, never assume.
Even if you think you know what you are reading, always ask for clarification.
Never worry about appearing difficult or silly.
There’s no such thing where contracts are concerned.
Believe me, there is many a lawyer who has similar fears…
So, you are not alone in that regard.
After all, the whole point in a contract is to ensure there are no misunderstandings.
Ask yourself “What is Missing?”
This can be rather tricky.
How do you know what should be in a contract but isn’t?
So, here’s a tip for you.
Regardless of the type of contract you’re dealing with, it’s best to think of it like this.
Simply imagine all of the things that could go wrong.
Then, check to see if all these things have been covered.
If not, look to have them included.
Is the contract fair?
Some contracts may contain terms that are unfair to one party or the other.
You can find that contracts drafted by one party can favour that party.
So, satisfy yourself that you are happy with the terms, and that they are balanced.
If not, look to get the terms changed.
And if you’re not happy, walk away.
What do I want in every contract?
Nearly every contract will identify who is making and signing the contract, what the contract is for, and who is paying how much and when.
Apart from the basic who, what, when, and how much, the rest depends on the deal you are making, and how much legal protection you want.
Generally speaking, be as specific as possible.
Some common contract terms you may want to consider include:
- Payment schedules: This can help make how much and when exceedingly clear.
- Timetables: Provide clear expectations for delivery of goods or services.
- Automatic or optional renewal: Makes renewing agreements easy, often with pre-negotiated updates.
- Ongoing arrangements: Formalizing ongoing agreements to buy, sell, or perform services can keep everyone on the same page.
- Dispute resolution: Requiring mediation or having a predetermined dispute resolution process can reduce the costs of fighting over legal disputes.
- Damages: When a contract violation or breach is clear, damages create a financial penalty for those breaches.
- Confidentiality: To keep some contracts, or information, out of the public eye, or your competitor’s hands, you may want to insist on confidentiality, or nondisclosure.
How do I prepare for a contract negotiation?
It may take a few rounds of negotiations to reach a final agreement.
In order to prepare for a contract negotiation, understand that an offer you make can prompt a counteroffer, which can prompt another round of offers, and so on.
In other words, in some contracts, any term in the agreement may be subject to negotiation.
Only you know what you will accept in a contract, so it may be smart to keep your bottom line to yourself.
To get ready for a contract negotiation, we suggest preparing:
- A firm bottom line so you know when to walk away from the negotiation.
- The ideal terms that you will agree to right away, such as a price.
- Strategic and flexible terms, such as timing.
- Anything that can be used for leverage, such as competing offers.
With the right preparation, you can confidently negotiate the best contracts for your business.
If you need help understanding how to read contracts…
Or you want to take it one step further and draft your own contracts…
We’ve got you covered.
Check out our Trading Contracts Hub where you’ll find great guides and contract templates to help you
So, remember, before signing an important document
- There is always room for negotiation. Until its signed, the terms of any deal are not set in stone
- Take time to review it and don’t allow yourself to be pressured into signing
- If there is language, words or terms you don’t understand get it changed and/or explained.
- Don’t be afraid to ask questions
- Ask yourself what is missing – because something generally is
And the BIG takeaway:
If you don’t understand it don’t sign it
Want to learn more about how you can write your own contracts?
Why not book some time for a chat
**Disclaimer. Please read!!**
This article is for general information purposes only and should be used solely as general guidance. It does not and is not intended to represent legal advice or other professional advice.
© 2022 Plugged Limited