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7 Common Mistakes in Business Contracts

Posted by I.Donald Weissman | Aug 17, 2021 | 7 Comments

Business contract consideration

Every business contract has specific details related to your goals and your needs. The purpose of the contract is to make sure every party involved established rules for specific outcomes both to protect one another and to ensure the agreed-upon services are upheld. Every business owner understands the importance of a business contract but can still fall prey to certain costly mistakes.

7 Common Mistakes in Business Contracts in the San Fernando Valley

Forming a contract is great news because it means you are in business, whether as a startup or a bakery, the beginnings as a landlord or starting a brand merchandising venture. A business contract helps you formalize your company and establish your specific rules for engagement with partners, vendors, and more. Certain actions and inactions have dire consequences when dealing with business contracts in the San Fernando Valley and greater Los Angeles.

A badly constructed contract is as powerless and detrimental to your business as no contract at all. Knowing the right words to use are as important as understanding the wrong words to avoid. You can quickly and easily undo all your hard work protecting your business and product by not adhering to certain touchpoints in your business contract.

By avoiding the 7 most common mistakes in business contracts, you can protect your business, your assets, your partners, and yourself. Take the following steps to avoid any pitfalls. For more help or guidance with your business contracts in Los Angeles, you can contact Weissman and Associates.

1. Having nothing in writing

The first benefit of a contract is that clarifies every parties' expectations. This helps avoid misunderstandings and encourages an exchange of ideas to further clarify your needs or the needs of other parties involved. Without a written contract, not only may you and those involved not be on the same page but it could lead to further issues down the line, eventually causing a rift in your business relationships, revenue, and assets.

A document spells out your rights and obligations, which can act as a huge help if any disagreement arises. While oral contracts may be valid in certain situations, they rarely carry the same weight or detail as a written contract.

2. Not specifying what a breach of contract looks like

The truth is, sometimes business, merchants, or people cannot follow through on their promises to deliver, no matter how good your relationship may be. If you have formalized your business relationship in a contract, you must also consider what would make you end that business relationship.

  1. What if your counterpart doesn't pay?
  2. What if a company delivers the product late or not at all?
  3. What if they deliver poor quality?
  4. What if you cannot work with the personality of your business partner?
  5. What if their business model needs to change?

These considerations put you and your relationship on the best footing to protect the entire business rather than fall let the entire endeavor fall at the whim of an inconsistent branch of your business. It covers you in a worst-case scenario. In this instance, you will have a clear process for dealing with the situation, which can force every party to act on their best behavior while keeping the option available if things go wrong. Consider the following questions:

3. Failing to constitute a clear termination policy for each party

A termination policy is similar to a breach of contract but is not the same. Instead of relating to the other person, a termination policy relates to your business concerns. You may just realize that after time in the business, even while the branches of the business are working, you understand your partnerships are not right for you.

There are plenty of reasons why you may choose to work with another party after a period of time but often a contract may only call for termination in the event of a contract breach. Cover your business properly by considering different reasons you may want to terminate a contract early. It may make sense for you and your business even if it doesn't work for other businesses. For instance:

  1. What if you have found a supplier who offers better discounts?
  2. What if someone else can do a better-quality job with faster turnaround?
  3. What if the needs of your business model and strategy change?

In a good contract, each party should have the opportunity to terminate their relationship on fair and equal footing simply because it makes good busines sense. However, if you overlook this possibility in your contract, you can pay dearly by acting or being unable to act.

4. Copying a standard contract directly

There is absolutely no such thing as a “standard business contract.” Too many businesses believe that they can cut and paste contract directly from the internet and send it to a client, partner, or vendor. While templates may exist for different occasions, each contract must be personalized in order to maximize your protection and benefits. Without considering the future possibilities, you endanger your business, assets, and self.

Just like with understanding how the right words to use and the wrong words to avoid will impact your contract, understanding the necessary details that need inclusion in your contract will also save you from future issues.

5. Signing without reading you contract

Never sign a contract without first reading it. It sounds easy and remains the most basic guideline for any business but many people continue to skim or ignore their contract. It is much easier to make excuses as to why you aren't reading the contract, such as, you don't understand the legalese anyway but by not take the time to read the fine print, other parties could include terms unfavorable to you. This is not only detrimental to your business but also antithetical to what you want out of your business.   

6. Signing without understanding your contract

Signing without understanding the contract is the same as signing without reading your contract. Contracts are complex for a reason. They are detailed for a reason. By breaking down terms and conditions for different contingencies, the contract is trying to cover each party. A contract does generally not read like a political thriller or a summer romance read.

A business contract is dense and can contain convoluted language. The typical conditions of a contract make it paramount to either learn how to read one or hire an attorney who understands the nuances, language, and meaning of a business contract and contract law. This is the only way to make sure you protect your rights and do not agree to obligations you do not actually wish to take on.

7. Not negotiating terms you don't like

A draft of a contract is just a draft, which means if a party has included terms, conditions, questions, etc. that you don't like, you can and should negotiate. All contracts are negotiations, no matter how official the document looks. The difficulty of the negotiation differs depending on the business contract but you always have the options of pushing back or walking away if you feel the terms of unfavorable to you.

In essence, a contract is one long negotiation. The purpose is for all parties to create an agreement in good faith in which everyone benefits in one form or another. With this in mind, you could always come to the table to find term more beneficial to your needs if it does not infringe upon the other parties or what the other parties are willing to give.

When considering how to negotiate, do not just look at the single item or term but all terms and items. All the details of your business contract are not created equally. What matters to you may not matter to another party. What matters to another party may not matter to you. This could be how you navigate a potential negotiation. For the best negotiation techniques and possibilities, you should contact an expert San Fernando Valley business contracts attorney.

If you have more questions or are looking for guidance on how to handle your business contracts, contact Weissman and Associates for a free consultation.

About the Author

I.Donald Weissman

For over 45 years, I.Donald Weissman has pursued justice on his clients' behalf. He appreciates the opportunity to represent you as a guide through the complex framework of the legal system.


Thomas Clarence Reply

Posted Jan 05, 2023 at 11:31:54

It was informative when you talked about how business contracts are detailed for a reason. I would imagine that there are certain laws that have to be followed when it comes to drafting and finalizing a draft for a contract. It seems like it would be a good idea to work with a business attorney when trying to create a business contract.

I.Donald Weissman Reply

Posted Jan 05, 2023 at 12:20:30

I agree Thomas, it would be in the best interest of all parties. Unfortunately, especially with the rise of online contract platforms (and this is not trying to disparage them, just referencing their macro approach rather than individualistic abilities), people are far more likely to lean into contracts that have not been personalized and therefore can overlook the important nuances a business contract requires.

Lily Reply

Posted Jan 05, 2023 at 16:33:03

It was instructive when you discussed the reasons why company contracts are thorough. I suppose that when it comes to creating and finishing a draft for a contract, there are some laws that must be adhered to. When trying to draft a company contract, it seems like it would be a good idea to consult with a business law attorney.

Sam Andrews Reply

Posted Jun 07, 2023 at 19:41:47

Yup, you were spot on in saying that we must understand laws related to a contract before signing it to prevent unequal disadvantages. Speaking of, my boss wishes to strike a deal with a prominent businessperson on behalf of our company this summer. Employing a legal expert should be his immediate action beforehand.

I.Donald Weissman Reply

Posted Jun 08, 2023 at 08:29:45

You are spot on; your boss should employ a legal expert to help navigate the trickier aspects of the situation and make sure the company’s and your boss’s goals are accounted for in the broad strokes and the minor details.

Sam Andrews Reply

Posted Sep 07, 2023 at 03:15:58

G’day, mate! My boss seems determined to strike a business deal with a Sydney-based company next month. That’s why I admire your effort in showing us that written agreements are more impactful and specific compared to verbal contracts. Well, he must consult a legal expert before taking further action.

I.Donald Weissman Reply

Posted Sep 07, 2023 at 09:46:35

I’m glad you found value here. It’s definitely important to consult a legal expert, especially someone who can offer more guidance if your pursuit is cross-national, across different states, or sectors.

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