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There is one decision in business that seems to come up over and over again – do I need a contract for this? When working with any other party as part of your operation, you’ll wind up thinking about whether your dealings with that party need to be governed by a contract or not.
On the one hand, creating a contract for just about everything can seem like a pain. Most of the time, those contracts won’t come into play, and everything will run smoothly. However, having a quality contract in place is certainly valuable insurance, and the one time you do need one, you’ll want it to be there.
At Fisher Stone, we are big proponents of the protection that contracts can provide to your business. Let’s use the space below to discuss five benefits of consistently using contracts and please reach out to us directly for all of your legal needs.
#1 – Establishing Clear Expectations
Anytime two people work together on anything – in business or in regular life – it’s important that they each know what to expect from the other side. That’s true for individuals and it’s true for groups or organizations. When there is an attempt at collaboration, clarity is key, and things will only move forward when clarity exists in the minds of each party.
This applies directly to the world of business and it highlights why contracts are so important. It’s one thing for the owner of one business to sit down for lunch with the owner of another business and agree to work together on a project. Perhaps the owner of the first business is going to supply some raw materials to the owner of the second. That’s great, and it’s the start of what could be a mutually beneficial collaboration.
But can the owner of the second business be sure that the owner of the first business is going to follow through? What if they don’t wind up supplying the materials as expected, or what if they run out at a critical time? There are so many things that can happen, and contracts are how you can account for those eventualities and provide your business with a degree of safety.
At their core, contracts are all about outlining the expectations of each party in a deal. They also outline the remediation process for what happens when one party doesn’t hold up their end of the deal. If you have great contracts in place in your business, you will have clarity with other parties, and complicated, messy disputes are far less likely to arise.
#2 – Mitigating Risk
This next point certainly goes right along with the first one, but it is different enough to warrant its own entry. What’s important to understand is that a good contract won’t necessarily prevent something from going wrong – there is always the potential for things to go wrong in one way or another – but it can limit the damage and help you continue to move forward. In other words, a problem that could be an existential threat to your business without a contract could turn into little more than a frustrating hiccup if you have a contract in place.
Of course, it needs to be mentioned that the protection a contract provides you is only as useful as the quality of that contract. If you were to just print out a generic agreement that you find online, fill in a few blanks, and have everyone sign it, that document would be close to useless. You’ll need something that is customized to the situation at hand and has been written by a qualified attorney experienced in this space, if you want to have true protection that will make your life easier later on.
While deciding how you are going to use contracts in your business, remember that it’s more than just money that you need to protect (although that’s important, of course). For example, you might use a contract to protect some important intellectual property that your business holds or to ensure confidentiality between the parties while working out a deal. Anything of value that your business has is a candidate to be protected through the use of a good contract.
#3 – Enforceability
Simply put, without a contract, it’s going to be virtually impossible to force another party to do something – even if they originally said that they would do it. If you have nothing more than their word to go on, and they wind up deciding to do something else or just walk away entirely, you’ll have no ground to stand on from a legal perspective.
When you have a contract, you have recourse when you feel that the other party in the agreement has treated you unfairly. It could be that they intentionally violated the terms of the contract, or it could be that they made a mistake but now won’t own up to that error and make it right. Either way, the contract should include language that dictates what happens next when one party in the contract is unhappy with the situation.
In the worst-case scenario, you can take your contract before a judge to get a decision on how the matter will be settled. But the great thing about contracts is that they are often able to keep you from reaching the point where you need to go to court in the first place. If the contract is written clearly, it will plainly lay out what is going to happen when there is a dispute, and it may be so clear that the other party won’t bother to fight it.
#4 – Building Trust
There is a common misconception that contracts are needed because one party doesn’t trust the other party. That’s not it at all. In fact, contracts are ideal where trust does exist between two parties, as each side will be happy to sign knowing that they fully intend on following through on their end of the bargain.
Trust is only further strengthened when a contract is in place. You don’t have to operate your business wondering if the other party you are working with is truly going to deliver on their promises, or if they are just going to drop you for the next opportunity as soon as it comes along. With a signed contract that outlines specific terms and perhaps the duration of your arrangement, you’ll feel good about the professional relationship between the parties.
It’s often the case that the completion of one successful contract will be followed by another one, and a lasting relationship can be the outcome in the end. Even between parties that have worked together for years, it remains relevant – and valuable – to continue to use contracts just to confirm that everyone remains committed to the process and has no intention of making changes anytime soon.
#5 – Improved Planning
It’s always hard to plan for an uncertain future. And, while having some contracts in place that are legally enforceable doesn’t entirely provide you with the type of predictable future you might like, it certainly does make some decision-making much easier.
So, how do contracts make for better planning in business? First and foremost, they should help you understand what your costs are going to look like for a period of time. As an example, imagine that you sign a contract agreeing to purchase a certain material from a supplier over the course of the next year. In that contract, there will be language that either defines a specific price or a range of prices that are possible based on market factors. You’ll know how much you are going to have to spend on your materials and the other side will be committed to that price through the contract you have both signed.
In addition to managing your budget, strategic planning also gets easier when you have contracts. Under that same example, imagine that your contract with the supplier commits to making a specific volume of material available to you each month. That assurance that you aren’t going to come up short in terms of raw material will let you plan your production schedule more confidently and, in turn, you can sign other contracts with customers who are going to purchase what you produce. All of these things become solidified by contracts and you will be facing less guesswork as you operate the business. Guessing is never good when significant dollars – and the future of your business – are on the line.
Contracts Made Easy
Yes – you should be using business contracts regularly to protect your company and maintain a bright outlook for the future. No – those contracts don’t have to be a hassle or slow down your operations in any meaningful way. To make sure contracts are a positive force in your business, work with the team at Fisher Stone to get organized on this important matter. Take a moment today to get in touch and let’s get this part of your business under control. Thanks for visiting!
