In today’s Freedom Friday blog and email newsletter, I want to talk about a topic that came to me from a prospective client this week. A lady sent me an email about a vendor contract that a relative of hers had signed. She had purchased the business from her relative and so she wanted to know if the contract was still binding, and whether or not she could end the contract, because she was dissatisfied with the vendor, and wanted to start using a different vendor for the products being provided. The contract she sent me to look at had a lot of fine print, although it was very short, and it was likely an “adhesion contract”. So, in today’s Freedom Friday blog and email newsletter, I’m answering the question, “Why should small business owners always read the fine print?”
The reason why a small business owner should always read the fine print is because in many contracts there are clauses which are red flags that are often ignored but then regretted later on. These red flag causes can cost small businesses hundreds of thousands of dollars. Here are three examples of fine print contract clauses which a small business owner needs to read and understand before signing any contract:
1. Indemnification
The first example of a fine print contract clause which a small business owner needs to read and understand before signing a contract is an indemnification clause, especially one without any limits. Look for language in the contract that says “indemnify,” or “hold harmless” (or both). If you sign a contract with this language, you could be agreeing to pay for the other party’s damages, attorney’s fees, settlement, etc., even if you didn’t cause the problem.
2. Auto-Renewals
The second example of a fine print contract clause which a small business owner needs to read and understand before signing a contract is an auto-renewal provision. Many contracts, especially with vendors and subscription services, include an auto-renewal provision. This kind of clause is triggered if you do nothing, and then the contract automatically renews for another period of time. This was in the contract my prospective client sent me. Unfortunately, if you’re not careful, you can be locked into a high-cost contract with a vendor which you cannot end without paying significant penalties. Many contracts also require you to cancel within a 30-60 day narrow window, but some require a minimum notice to terminate of a full year.
3. Termination
The third example of a fine print contract clause which a small business owner needs to read and understand before signing a contract is the termination clause. Sometimes the termination clause is reasonable, but in vendor contracts and subscription contracts, sometimes termination clauses are lop-sided or unusual by including unreasonable provisions, e.g., one of the parties can terminate at any time but the other must give notice, notice must be given too far out in advance, or other unreasonable terms.
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 Jonathan@libertylegalok.com to schedule a FREE strategy session.
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