Whether it's partnering with a new vendor, hiring a consultant, leasing a new office space, buying new software, or taking out a loan, there are many times in your business when you will be called upon to sign a contract. When those times come up, you probably know enough to read the contract before you certify it. But that doesn't mean you know what to look for when you do.
"Too many … business owners gloss over important terms in contracts they sign. This can cause a problem later in the relationship if they are not properly negotiated," says Small Business Trends contributor Barry Moltz.
According to Moltz, there are a few things you should look for when you're reviewing a business contract. The most important being payment terms.
"Always review this part first in the contract," he advises. "Do this by searching on the symbol '$' throughout the document. Ensure that the financial terms were what the parties verbally agreed to before this draft. If this section is wrong, it does not make sense to focus on the other parts of the agreement until this is fixed. Carefully note if the exact timing of the payments is tied to specific dates, elapsed time (90 days from now), or to milestones being achieved (and who determines if the milestones are complete)."
Next, look for non-compete clauses. "Many contracts state that once a company is doing business with one company, they can't do it with a competitor, in similar industries, or for a period of time," Moltz explains. "While this can make sense in some situations, try to take these clauses out of the contract or at least make them as narrowly defined as possible. Fighting this limitation may be important to growing a company since expertise in an industry can be valuable to future customers."
Finally, consider liability and indemnity. "Contracts are a set expectation of what is to be done. Therefore, they become critical as a written record of what happens if things go wrong," Moltz concludes. "Review who is liable if either of the parties get sued by an outsider and who will pay the legal costs … Try to get the other party to be responsible for all claims or at least have each party take care of their own legal expenses."