I know you have waited for this opportunity for so long and you are ready to say yes. I know you are excited and all set to go for it. I know this partnership could “potentially” open up even greater opportunities. I know you are so ready to formalize the relationship and put a ring on it. But before you say I do… to that business relationship, and sign the contract the other party has asked you to sign, there are 6 things I want you to consider doing that could protect your business and save you money.
1. Read the contract:
The very first thing you MUST do is to read the contract. A contract is legally enforceable and legally binding on the parties to the contract, no contract should ever be taken lightly. You have to read the entire contract, not just parts of it, EVERYTHING. Especially if you do not have a lawyer who is going to review the contract for you. It is not a defense to a breach-of-contract action to say that you did not read the contract.
Being a small business owner or entrepreneur, dealing with contracts is part of running a small business. And not reading the contract before you sign, is perhaps one of the biggest mistakes anyone whether you are an entrepreneur or small business owner can make. You could potentially be exposing and opening up your business to a lot of risks that could be avoided.
I know it can be difficult reading the entire contract especially the fine print. And many times, it’s just easier to take the word of the other party as to the terms of the contract and sign without reading it. Even if the other party is a family member or a trusted friend, you need to protect your business and not put your business at risk by relying on what they have told you. Please read the contract yourself.
Also, don’t fall into the trap that, “this is just a “standard contract” so all you have to do is sign.” Basically, what they are really saying is that “because our business deals frequently in this particular area, we have prepared our own contract that lays out how things will work and that is the “standard” contract we provide to anyone who is interested in doing business with us.” Standard contracts are generally written to benefit the interests of the person offering the contract. Do your due diligence and read it.
READ ALL OF IT. EVERY WORD SHOULD BE READ. DO NOT SKIM IT. DO NOT IGNORE THE BACK. DO NOT SKIP THE FINE PRINT. READ ALL OF IT. EVERY WORD COUNTS.
2. Ask questions and understand the terms:
Before entering into a contract, you should carefully read it to ensure that you understand your obligations and the obligations of the other parties to the contract. Do not sign a contract when you do not clarity about the terms of the contract. ASK QUESTIONS. DO NOT PRETEND THAT YOU UNDERSTAND WHEN YOU DO NOT.
As a general rule, Canadian courts expect that if you have signed a contract, you have agreed to it and you will therefore be bound by its terms. You may not be protected if you claim you did not understand what you were signing. Therefore, always make sure you understand a contract before signing it.
You should preferably ask a lawyer if you do not understand something, but at least ask the other part to the contract and get their answer in writing.
You should also consider asking yourself questions as you read the contract. Consider some of the questions below:
- Does this contract accurately express our previous agreement and arrangement?
- What are my obligations and the obligations of the other party under this contract? Have they been clearly expressed in the contract?
- What risks does this contract expose me to? To what risks is the other party exposed?
- Does this contract clearly detail the who, what, how, where and when of the agreement? Does it cover everything that it is meant to?
3. Propose changes and negotiate for better terms:
The terms are considered to be the most important part of the agreement. They set out the rights and obligations of the parties and explain what the agreement is about. You don’t want to sign a contract with terms that are or will be unfavourable to your business.
Often, contracts may be biased toward one party, usually favoring the party who drafted it. Since you did not write the contract, you should take steps to eliminate these biases. Ensure you have a working understanding of the contract and its language so that you can discuss it knowledgeably and modify it to fit the needs of both parties to the agreement.
Depending on the type of agreement, be prepared to do some major detail work revising it. Make a list of the changes, or modifications, that you would like to see, then discuss them with the other party to the contract. As a result of this negotiation, you may be able to change the contract so the terms or conditions are more favourable to you.
Before you sign the contract is the best time to ask for negotiations, modifications and changes because the other party may not want to consider making those changes once the contract has been signed by both parties.
Consider how important the contract is to your business and whether you can live with its terms. Do not agree to terms that will be detrimental to your business in the long run just because of the short term financial gains.
4. Fill the blank spaces:
You should not sign a contract that has blank spaces left to be filled in. Make sure all blank spaces are filled in or crossed out before signing any documents. This is to prevent the other party from modifying the contract without your consent with information that was not part of the agreement.
5. Don’t rush into signing:
I know this is a big deal for you. It is a great opportunity for your business, but don’t be pressured or rushed into signing a contract. One bad deal can cost you lots of money…even your business. If need be, be prepared to ask the other party for more time to read the contract. Anyone pressing on a fair agreement won’t negate such a request.
Hire a lawyer to review the contracts before you sign:
Consider hiring a lawyer to review the contract before you sign.
You may believe it is not necessary to hire a lawyer. But a lawyer can help you avoid the potential consequences of a bad contract and ensure that your legal rights and business interests are protected. A lawyer will be able to look at the contract, check for any loopholes the other party could use against you and make sure the other party is not trying to take advantage of you. If needed, the lawyer can also negotiate and ask for certain changes to be made to better protect you.
Hiring a lawyer to review the contract before you sign, can help you as a business owner increase your productivity so you are not spending hours trying to understand and review a contract, when you could be involved in revenue generating activities for your business.
You may also believe that it is too expensive to hire one and you don’t have the funds to do that. But the truth is that, it may even be more expensive not to hire a lawyer if something were to go wrong in the future thereby causing major problems for your business.
After signing the contract:
I want you to retain a copy of the fully executed copy. An executed contract is one that has the signatures of both or all the parties involved. This is the best way for you to provide evidence of its existence and terms. If something were to happen and you didnt retain a copy of the executed copy, the person who has the only copy could dispute that there was even a contract in place.
It is worth mentioning again that because a contract is legally Enforceable and legally binding on the parties to the contract, no contract should ever be taken lightly. It is imperative that as an entrepreneur or a small business owner that you protect your business by not rushing to sign any contract. Take your time, read and understand the contract, negotiate the terms if they are unfavourable to you, or just simply get a lawyer to review it for you. Once you’ve signed a contract you may not be able to get out of it without compensating the other party for their genuine loss and expenses.
Kemi Adefarakan is a Business Lawyer who works with small business owners, entrepreneurs and professional women with a side hustle, to help them start, build and protect their business, brands and legacy. She is also an empowerment strategist passionate about using her words, both written and spoken to inspire and empower professional women who want more for their lives, to stop waiting, watching and wishing and for them to start living their dreams boldly. She is a Speaker and has authored 3 books. She loves to cook, read and travel. She lives in Milton with her husband and 2 beautiful boys.