In order for a business deal to be successful, each side must agree on the details in writing. But contracts are only as good as the people who sign them, so we've put together some tips to keep in mind the next time you're negotiating a contract.
No mystical powers
First, understand what a contract can't do. A contract can't protect you from a lawsuit or guarantee that the other party will live up to their end of the agreement. It's simply a way to spell out the details and can serve as a reference when there are questions as the deal is carried out.
Bad is bad
If the other party can't fulfill their part of the agreement because of price or supply issues, for example, then the deal was bad to start with, and the contract is no good. The same goes for contracts made with people without integrity, who simply won't meet the terms of the agreement. If a person's handshake is no good, his contract won't be either.
The five Ds
Your deal may be built on the best-case scenario, but your contract should cover the worst-case scenarios. These include default, death, debt, disability and destruction. Your contract must answer the question, "What happens in the case of..." because all of these things happen when you least expect and to the people you least expect. Your contract will serve as a roadmap, saving time, money and hard feelings.
Always have an attorney review the contract. It's amazing how much more you can squeeze out of a contract if you just bother to read it and request a few changes. When you can, have your attorney draft the contract so you win the fine points of the negotiation. Keep the deal in balance, though, by making the contract a win-win. That way both companies prosper, and you can continue working together.
Stop leading alone! Get trusted advice and accountability when you join an Advisory Group of like-minded business owners helping you win.
A few more quick notes about contracts
- Contracts must always be in writing and contain all aspects of the deal. If the other party is unwilling to write what they say, future problems are on the way.
- Include contract extensions, renewals and options that are to your favor, especially in leases and vendor agreements, so you can control your overhead costs in the future.
- Don't try to contract away liability. Your contract is subject to the law, so if the law says you are liable—you are.
- If your company is a corporation, sign the agreement as your title on behalf of the corporation to protect your personal assets in the event of a lawsuit.
Finally, remember that everything can be negotiated in a contract. If you don't like a certain detail or requirement, ask to have it removed. Likewise, if you want something added, request it. Drive the negotiation so your contract meets your needs.
One of Dave's Commercial Real Estate Endorsed Local Providers gives some great advice about negotiating commercial lease contracts. There's a lot of great information here, so check it out!
An essential characteristic of any great leader is a willingness to learn. And one of the easiest ways to gain knowledge is with our EntreLeadership Podcast. Each week, we share tools, tips and great conversation with some of the top business and leadership experts in the country, as well as interviews with fellow EntreLeaders. Listen now.