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. Today we're going to cover the sixth step in taking your small business to the next level, and that 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 unfavorable terms, or may not be legally enforceable. It is a good idea to consult with an attorney to make sure that all your contracts for your small business are proper documents, and that your small business has a written contract in place with every vendor.
Also, if you've signed a contract while operating as a DBA, those contracts either need to be assigned to your LLC or business entity, or otherwise changed. It is a good idea to go back and read your contracts to see if they are assignable. If you can assign them, then you should assign them to your LLC or business entity. Otherwise, when the contract comes up for renewal or extension, the contract needs to be changed to the LLC instead of you personally and/or your former DBA.
Here are three (3) red flags to watch out for when signing a contract for your small business:
1. The Parties to the Contract
This may be strange, but the first possible red flag to any contract is the parties to the contract. Not the parties themselves, but before you sign any contract, make sure the parties listed on the contract are the correct parties. This includes checking for the correct business entities, dates, time frames, etc. A mistake in this area could be costly to your small business. Make sure you double check these details, especially the parties involved, to be sure the financials of the deal are going to the correct place.
2. Payment Terms
Again, at first glance payment terms might not be considered a red flag, but if you get it wrong, it could be costly to your small business. There needs to be an agreed upon price and schedule of payments understood by both parties. There are two essential parts of the payment terms of any contract. One is consideration, which is usually some form of payment or money, but can also be a binding promise to perform specific work. The other is the payment terms themselves, which lay out the specifics of what products or services are to be expected, and how these products or services will be paid for. Make sure to double check the accuracy of the payment terms section of your contracts for your small business.
The third red flag to watch out for is penalties, and this truly is a red flag. This is the part of the contract which addresses what happens if one of the parties does not fulfill their obligations in the contract, e.g. 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 mistake happens, many contracts will allow for a “cure period” to fix the mistake. The other item to watch for is a contract enforcement provision called “venue.” 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 their state, but not your state.
If you are interested in starting a small business anywhere in Oklahoma, or you are interested in taking your small business to the next level, 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/