By Sanjeev Kumar
Founding Attorney
Founding Attorney
Small businesses need contracts to manage operations and relationships with customers, suppliers, contractors, and employees. However, mistakes during contract negotiations or during the contractual relationship can lead to potentially expensive legal disputes for your small business.
Common Contract Mistakes of Small Businesses
Ten of the most common contract mistakes that small businesses make include:
- Not Having Written Contracts – Small businesses can avoid complications with contractual relationships by avoiding using oral agreements. Some contractual agreements require written contracts, so insisting on having a written agreement can ensure the enforceability of a contract. Written contracts can also help reduce the chances of confusion or disagreement on the terms of the parties’ agreement.
- Using Ambiguous Language – Even if your business has a written contract, using vague or ambiguous language in the contract terms can lead to misinterpretations and legal disputes between your business and your counterparty. A contract should define key terms to set clear expectations for the parties regarding rights and obligations.
- Not Negotiating a Tailored Agreement – Your business may try to save time and money by using a generic contract template, such as a vendor contract or master services agreement, for your agreement. However, a template contract may not adequately address your business’s needs and goals. You can best protect your business’s interests by taking the time to negotiate a custom contractual agreement.
- Overlooking Critical Provisions – When negotiating a contract, you might inadvertently overlook critical provisions that the contract should cover, such as indemnification provisions, force majeure clauses, and dispute resolution agreements. An experienced contracts attorney can help you identify the provisions that your business’s contract should cover.
- Overlooking State and Local Laws – Depending on the type of contract, your business should consider the applicability of state and local laws. For example, employment contracts with your business’s workers must follow state employment and wage-and-hour laws.
- Having Poorly Defined Payment Terms – Failing to establish deadlines for payment, conditions for payment, or clear guidelines for calculating the payment due can lead to disputes and potential breach of contract litigation.
- Forgetting to Review and Update Contracts – Your business’s contractual relationships can last for months or years, but circumstances can change over time, which may make your company’s contracts outdated or obsolete. Your business should periodically review outstanding contracts for relevance and compliance with current laws and strategic goals.
- Omitting Restrictive Covenants – In many cases, your business’s contract will need restrictive covenants, such as non-disclosure, confidentiality, or non-solicitation clauses, to protect your company’s interests.
- Excluding dispute resolution clauses – Many commercial contracts include dispute resolution clauses that require the parties to pursue mediation or arbitration, which can help resolve a legal dispute more quickly and with less expense. A mediation or arbitration clause can allow your business to promptly and privately resolve a dispute with a counterparty so you can move on with operations.
- Not Consulting an Attorney – Finally, one of the biggest mistakes your small business can make when negotiating and fulfilling contracts is not having legal representation. A contracts attorney can help your business avoid potentially catastrophic mistakes during contract negotiations and while fulfilling your company’s contractual obligations.
How to Avoid Contract Mistakes
Small businesses can reduce the risk of making mistakes with their contractual relationships by following a few tips, such as:
- Conducting regular audits of existing contracts to ensure the business’s compliance, check for the relevance of the contractual relationship, and update contracts as necessary to reflect changing circumstances
- Using contract management software to stay organized and prevent inadvertent breaches of contractual obligations
- Working with an experienced business attorney to help negotiate contracts and resolve legal issues that may arise in contractual relationships
Contact an Austin Contracts Attorney Today
When you own a small business, avoiding these common contract mistakes can help prevent significant financial liabilities that may sink your company. Contact The Kumar Law Firm PLLC today for a confidential consultation with an Austin contracts lawyer to discuss negotiating contracts for your business.