This week in the Freedom Friday blog and email newsletter, we're continuing the series 10 Steps to Take Your Small Business to the Next Level in 2023, and this week we're discussing the sixth step to take your small business to the next level, which is to review key contracts. Each time you sign a contract, you enter into a legally binding agreement on behalf of your small business. Unfortunately, a contract may have terms that are unfavorable, or those terms might not be enforceable. It's a good idea to consult with an attorney to make sure all your contracts related to your small business are proper documents, and that your small business has a contract in place with every vendor.
Also, if you've signed a contract while operating as a DBA, those contracts need to be either assigned to your LLC or business entity, or otherwise changed. It's a good idea to go back, read your contracts, and make sure they're assignable. If you can assign them, then you should do so. Otherwise, when the contract comes up for renewal or extension, the contract will need to be changed to the LLC or business entity instead of you personally or your DBA.
Here are three (3) red flags to look for when signing a contract for your small business:
The Parties to the Contract
The first red flag to look out for when signing a contract is the parties to the contract. Why are the parties a red flag? The parties themselves are not a red flag, but you need to make sure the contract identifies the correct parties. This also includes checking for the correct business entities, dates, time frames, etc. A mistake in this area could cost your business down the road. Make sure you double check these details, especially the parties, and make sure the financials of the deal are going to the right place.
The second red flag to look out for when signing a contract is payment terms. Why is this a red flag? If you get the payment terms wrong, it could cost your small business. There needs to be an agreed upon price and schedule of payments which both parties understand. In any contract there are two essential parts to payment terms. One essential part is consideration, which is usually some form of payment or money, but consideration can also be a binding promise to perform specific work. The other essential part is the terms of payment themselves, which lay out the specifics of what products or services (or both) are to be expected, and how these products and/or services will be paid for. Make sure to double check the accuracy of the payment terms section of your contract for your small business.
The third red flag to look out for, and this is truly a red flag, is penalties. This is the part of the contract which addresses what happens if one of the parties does not fulfill their obligations in the contract, for example, they don't pay, they don't perform, or they don't deliver. There are two things to watch out for here. One is a “cure period.” When a party makes a mistake, many contracts allow for a “cure period” to fix the mistake. The other item to look out for is a “venue” provision. This provision affects where the contract can be enforced in a court of law. Many contracts require the contract to be enforced in a state where you do NOT live or have your small business located. It is not uncommon for a vendor to send you a contract which is only enforceable in the vendor's state, but not in your state.
Thinking about starting a small business? Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at [email protected] to schedule a FREE strategy session.
For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/