A contract is a legal document binding you and another party to certain obligations — and when you're a small business owner, making one tiny mistake in drafting a contract could mean the end of your business. Before you sit down to create a contract, take some time to learn the most common mistakes small business owners make when they're drafting a contract.
Mistake #1: Being unprepared. Don't start writing the contract until you have all the information you need. Write an outline of all relevant facts, figures, and data: costs, due dates, obligations, responsibilities, "what ifs," etc. Also get a similar outline from the person you're doing business with so you know what information they want included.
Mistake #2: Not calling it a "contract." This may seem simple, but in court, one word could make the difference between a document that's legally binding and one that's merely seen as an agreement. Put the word "Contract" right at the top.
Mistake #3: Being too general. Contracts require you to be as specific as possible to avoid any disputes later on — especially when it comes to payment terms. How much is owed? When is it due? What happens if the payment is not made on time? Is the payment contingent on any factors? Everything must be spelled out in the smallest detail. This process applies to everything in the contract. Don't assume anything.
Mistake #4: Confusing wording. Make your sentences as short and clear as possible. Leave out the jargon in your first draft (your attorney can add that later). Stick to straightforward wording, and write numbers in both number form and word form (e.g., "six (6)"). Also, be consistent in your wording: Don't call your products "goods" in one sentence and "items" in another. Finally, define all terms you think might be confusing or need clarification.
Mistake #5: Rushing through the drafting stage. Yes, you may be in a hurry to get started on that big order or project. But because the contract is such an important document, it's crucial not to rush through the process. Picture yourself in court with the other party. What issues might come up? What is the contract missing that could prove your case? If the client or vendor is impatient, make sure they know you are working on the contract. It may help to have them look over a rough draft before they see the final contract.
Mistake #6: Not using an attorney. You can draft your own contract initially, but your attorney should always review the final document. Let the other party to the contract know that you are doing this, and suggest that their attorney do the same. It's better to be overly cautious now than to be sorry later.
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