Contract issues in business

One Size Does Not Fit All: Contracts Edition

In Contracts 101 by Shannon Montgomery

Over the past few months, I have had the pleasure of reviewing and negotiating, some very one-sided contracts. Businesses of all sizes are continually utilizing extremely unfair contracts. Some of these are short and to the point, but they still leave my client completely unprotected in the situation. Often times if you’re an individual or a smaller business contracting with an entity larger than you, this is the position you will find yourself in. And, it is way too risky not to address.

And I am not just thinking of influencer marketing agreements or employment agreements. This is happening in every facet of business, think commercial leases, manufacturing agreements, purchase agreements, and my personal favorite the terms and conditions or sales agreement on your favorite brand’s website.

My best advice will always be to hire an attorney to review any agreement for you (and I know some great attorneys that do this for an affordable rate). But, if that truly isn’t in the budget here are some steps you need to take in order to protect yourself and your business.

Let’s start with the most obvious, read the entire contract. Google what you are unsure of, and get a good sense of what the other party is asking you to agree to. The usual formula I see goes a little something like this. You lose. I win. Sign on the dotted line. But just because something is presented to you as a take it or leave it deal, that isn’t always the case, so let’s get out of that mindset when you’re doing your initial read through. As you’re reading mark down things you don’t know or things that make you uncomfortable and come up with (in your own words) changes that make sense for you and your business to present to the other side.

Why are companies so quick to hand over one-sided I win you lose agreements to you? A few reasons. After the economy tanked in 2008 business got tough and the contracts got tougher. Some businesses use them as a way to puff their chests and make a power play, others simply know you won’t read what they’re sending so they sneak in all kinds of goodies. And lastly,  businesses you work with might realize that you don’t know what is normal or not for a particular agreement and they want to take advantage of that.

But, we aren’t going to let them do that. We’re going to fight back.

Negotiate for Yourself!

Give yourself plenty of time for the review and rewriting of an agreement. If you run out of time, you run out of bargaining power. Make sure you schedule everything out, that you start working on the deal well before you need to produce or you need the deliverables and you’ll stand on better bargaining ground.

Make sure you’re informed. The more you know about your business, the other business, and the market the better off you will be. If you know what the going rate for your product or service is, make sure that is reflected and respected in the agreement.

Have alternative deals in the works. I know this might seem difficult, but it can be done. If you start out by negotiating with just one party, that party will likely try to take advantage of you. But, if there are 2 or 3 options out there for you explore them all at the same time. And if there truly is only one option, let that option know you’re comfortable walking away if the deal isn’t right.

In order to avoid a lengthy negotiation that may go array, there are some best practices for your business.

Draft your own contracts! You’re not always saving money by having the other party draft the agreement for you. In fact, it could cost you much more in the end. But if you come to the table with a well-drafted agreement you know you’re protected in, that’s worth the money it might cost you to hire an attorney to draft the thing for you right?

Work with experts when drafting, or negotiating. If it’s a new venture for you there is no excuse not to have an expert on your side at least in the beginning.

Finally, change your mindset about contracts. I regularly draft contracts for clients and they inevitably come back to me with the, well does it need to include x,y, and z? And aren’t these really just “what if” scenarios? Well, yes but those “what if” scenarios turn into everyday events in my world, so let’s just keep those in there shall we? If you’re working with an attorney and the contract includes provisions you don’t understand, ask why they’re there rather than assuming it’s all legal jargon and “what if” situations.

It only takes one bad deal to take your whole business down. Not to scare you or anything, but you need to take the contracts you sign seriously. A one-sided agreement can tie up your time and finances and keep you from running and growing your business. It is worth it to treat each deal as if it could be the bad one even if it is something you do in your business routinely. Plan for this, negotiate and write a contract that works for both sides.

If you have more contracts questions or need help with one you have, send an email to me at Shannon@montgomerypllc.com.

 

Please note that this is not meant to be legal advice for you or your situation, this is merely some legal research and knowledge on the given topic.