Like most people, small business owners tend to shy away from signing anything. They avoid contracts like the plague. But this is a risky way to do business.

When you are making a major product or service sale or purchase, you need to get the details of the transaction in writing. If you don’t, you will inevitably find yourself in the middle of a heated discussion over specific terms. Does the purchase include freight costs? Can sanctions be imposed if delivery isn’t met? What if the services rendered are considered unsatisfactory? In many cases a purchase order and/or a written estimate will provide the answers to these types of questions and serve, in effect, as a contract.

When Should I Consult an Attorney about a Business Contract?

For small, routine purchases and sales, you may wish to have an attorney review the basic purchase order or sales document that you will be using. For larger or unusual transactions, you may wish to have your attorney review the contract you intend to use, if not draft it. After you have been in business for a while and have learned a thing or two from your attorney, you will gain the ability and confidence to write many of your own contracts.

For more important contracts, retain the original copy containing the original signatures from all parties. True, in many situations, a photocopy or even an agreement without signatures offers adequate proof of a purchase or sale agreement, but nothing can beat an original copy as legal protection.

Any substantive changes to a contract should be noted in writing. If they are in the body of the contract, then each change should be initialed by all parties involved. If it is in the form of an addendum, it should be signed by all parties involved. A contract should specify that it represents the entire agreement between the parties and that any changes must be in writing.

To avoid court and the legal costs associated with lawsuits, contracts should, generally, have a clause specifying that disputes will be arbitrated. The method of arbitration should be stated and the results of the arbitration should be held binding.

As a small business, it is not unusual to feel pressured to sign a very one-sided contract, and seldom will it be one-sided in your way! This is often the case in dealing with landlords or when selling products or services to a much larger corporation. Ideally, what you want to do in these situations is try to find out which clauses are typically negotiated out or watered down and which ones are not. Then you need to try to decide what you can live with in the contract and what you can’t. Sometimes you might feel it is in your best interest just to walk away and not do business rather than sign a contract as is.

In the book business, we very much wanted to do business with a particular wholesaler, the largest in the industry. Initially we were told we would have to give a much deeper discount and much more generous terms than we were giving to other wholesalers we were using. We balked and didn’t do business with them.

A couple years later we went back to the key wholesaler. We were still a very small player in the industry but a lot larger than the very tiny player we had been a couple of years before. So we arranged to contact a senior executive there and, much to my surprise, he was very eager to land our business. So much so that he traveled out to our office the next time he was in New England. Then we negotiated a contract that was much more favorable.

One of the best ways to negotiate contracts is to find win/win situations. We soon learned that this large wholesaler could ship our books to their warehouses for a fraction of the cost that we could, because they used their own fleet of trucks and could combine our shipments with a number of other publishers. So by having the wholesaler agree to pay for the freight cost, we came up with a discount rate that worked well for both parties.

Takeaways You Can Use

  • Contracts are important for avoiding arguments over the specific terms of a transaction.
  • Especially when starting out, have an attorney review critical contracts.
  • Contracts with larger companies might be more negotiable than you first think.
  • For important contract issues, you should find out how other players are handling them in your industry.