You might be comfortable with using handshakes and promises to confirm deals and agreements, especially when it comes to friends and family. However, to successfully own and manage a business, it’s important to put things down on paper. Contracts enable you to protect yourself and your business should disagreements, conflicts or contractual violations arise.
Why else is a written agreement so important?
1. It proves that the deal actually took place.
Negotiations often entail a great deal of back-and-forth before the parties reach a final agreement. Signing a formal contract signifies that the transaction took place. When properly drafted, a contract supersedes prior spoken negotiations that may have taken place. It serves as proof of the actual agreement in all its minutia.
2. It irons out the details.
A thorough contract should reflect a “meeting of the minds” regarding both the big picture and the details. Without an agreement in writing, however, it’s easy to lose track of the nuts and bolts. You might remember a certain detail one way while the other party remembers something completely different. A written record, properly executed by all parties, staves off such disputes.
3. It prevents misunderstandings.
A written contract should clearly lay out the parties’ expectations. For example, if you were to enter into an agreement with a vendor, your business contract should contain, at minimum, the following elements:
- Start and end date for services rendered
- The nature, type, quality and quantity of products or services provided
- The role of each party
- Payment details and options
- Conflict and dispute resolution clause
- Resolutions for breaches
To ensure that your contract is effective, don’t rely on a template, and don’t just sign on the dotted line without reading the agreement in its entirety. Consider having an attorney review the document — especially if it’s a high-stakes deal that involves significant interests or large sums of money. A knowledgeable business attorney can ensure that you understand what you’re signing. They can also identify potential problems and propose revisions if necessary to help protect your interests.