Your contracts should grow with your business.
When you first started out, how did you create your contracts? A lot of people went to a random website and downloaded what they thought they should be using. Others would look around the industry, find maybe a competitor or speak to somebody else and use whatever contracts other people were using. And sometimes you were just operating on a handshake, and you're hoping that nothing ever happens with your contracts that need to sue somebody. This can be really common and many small businesses with a very personal relationship with their customers don't think they need actual contracts. They're just working on a handshake. However, if things go south, what are you going to do? These types of contracts work until they don't. So as you grow, you should always always be revising your contracts and taking a look at them seeing are they longer than they need to be? Are they missing any terms or clauses? Does it have hard-to-read language and other clauses that don't apply to your business?
Mistakes in Your Contract to Look For
- A lot of contracts are a lot longer than they need to be. This can be very common if you've borrowed a contract from somebody else who has a very in-depth model for their business and has a lot of terms that they need, but maybe your business doesn't need them. But if you've borrowed from somebody else, you might be missing something that you need.
- Missing clauses. A common clause that I see absent is an indemnification clause. What happens if somebody is sued for something that happens under the contract by a third party? Do we know who's going to be defending who?
- Hard to Understand Clauses. Indemnification clauses can also be really hard to read. A lot of times you've taken a contract with somebody else who had it drafted by a big law firm, they spent thousands of dollars on it. And the language? You don't even understand it. You're running a business, but you don't understand what your own contract says.
- Irrelevant Clauses. Clauses that don't even apply to your business are common if you've downloaded your contract from the web. And you look at the governing law of the jurisdiction provision, and it's got a state you don't even do business in. You're in New York and your contract says all disputes are to be resolved in the courts of Texas. So what happens if you need to sue a customer? You've got to go to Texas to do it. And if you're in New York, and your customers in Georgia, what in the world is Texas gonna have to do with this lawsuit?
You want to avoid these mistakes and have a good contract that evolves with your business over time. What you're going to find is as you have your contract and you're working with different customers, you'll figure out where the issues are. Maybe there's something you forgot to put in there. Or maybe there's something that just keeps coming up, and it's just not worded correctly. And you want to make sure you get it clearer so that you and your customers know what they're actually dealing with.
The best way to do this is to check in with your attorney. It's like a doctor's checkup. You don't have to do it yearly on a schedule, but every now and then you should check in with your attorney. Just have them take a look at your contract. They may just find one or two little tweaks. We need to change a provision here or switch something there. Sometimes you might even need a whole new contract, especially with the pandemic that started in 2020. The force majeure clause, things that were way beyond anything we could have imagined, have become much more important, and many old contracts didn't even have them, because it was considered something that you wouldn't even have to deal with.
If it's time for you to review the contracts for your business, let's schedule a Legal Strategy Session to discuss the contracts you're using in your business and whether or not they need to be revised. Your contract should grow with your business. You should not outgrow them and have them be too complicated for you and your clients to understand.
