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By Purple Fox Legal

September 7, 2022

When you first started your business, you likely had to handle all the roles and responsibilities on your own. But, as your company grows and flourishes, it won’t take long to realize that you need a little help. As you welcome new people into your business operations, it is critical to keep yourself protected. Business contracts can help. 

In this article, we will discuss small business contracts, including what they are and how to write them. Then, we’ll be sharing the top tips to consider while writing and reviewing your business contracts. 

What is a Business Contract?

A business contract is a legal written agreement between two (or more) professional parties that outlines the terms of their relationship. Small business owners typically create contracts with employees, independent contractors, and other business owners. 

A legally binding contract requires an offer, acceptance of that offer (i.e., not a counteroffer involving different terms), and mutual consideration (i.e., an exchange of value between the parties).

How to Draft a Business Contract

Drafting an effective business contract takes a little bit of time and expertise. You’ll want to ensure that your business remains protected, while all parties still benefit from the relationship.  

Although, there should not be any outdated words, such as “whereas” or “wherefore” in any of your business documents. Using that type of language makes your documents harder to understand and implies laziness or unprofessionalism. 

If a business doesn’t take the time to draft quality legal documents, then a customer or potential business partner might wonder what other tasks the business slack on performing. Or even worse, a customer might wonder whether the company is being truthful or fair in its business dealings when it provides complex, difficult-to-understand documents.

9 Tips to Consider When Drafting Your Small Business Contract

Simple contracts are the best contracts. However, simple doesn’t always mean short. The purpose of any contract is to document a business relationship so that all involved parties clearly understand their rights and obligations under the contract.

Simple written agreements are easy to decipher and navigate. They’re cohesive and inclusive, and they keep your business protected. When sticking with simple contracts, you’re more likely to draft several types to cover all of your needs. 

Here are nine questions you should ask yourself when writing your business agreements.

1. Have You Described the Goods and Services?

Your contract might include a general overview of the goods or services in question, but how deeply does it define them? 

When talking about goods, you can use identifiers, like SKU numbers, size, weight, color, model, and any blemishes or markings. It may also be appropriate to include product images as exhibits to the written agreement. 

Service contracts should clearly define the work that needs to be done and a timeline it will follow. In some cases, it may be best for the parties to create a work schedule that explicitly provides the phases of a project as well as deadlines for completing tasks and payment due dates. 

2. Are the Payment and Billing Terms Clear?

Does your contract include a clause that covers the terms of payment? This is necessary for ensuring that you’re being paid in a timely manner, whether it’s a flat fee rate, hourly rate, or an alternative payment schedule. Your contract should also include the method of payment that was agreed upon, whether it’s via cash, check, or some online portal. 

In general, it is recommended that businesses utilize online payment methods because cash flow represents the heart of every small business and online payments are processed more quickly than traditional forms of payment. 

3. Are the Contract Terms and Scope Clearly Defined?

Are the terms of the contract, including its length and geographic location where it applies, clearly defined and understandable? For a contract to be legally binding, it must be clear and concise. Some contract terms to consider including are:

• Duration or length of the business relationship
• Geographic scope 
• Limitation of each party’s rights
• Specific duties of each party (i.e., directions for labeling products in an intellectual property licensing arrangement)

4. Is There a Way to Terminate the Contract?

Not all contracts carry out their life cycle. Unfortunately, some need to be ended early due to factors like a breach of terms, mutual agreement, or rescission. For this reason, all contracts should include a termination clause. This area of your contract will set the terms and conditions that allow for contract cancellation with or without penalty. 

5. How will Potential Disputes be Resolved?

Disputes are bound to happen every now and again, which is why a dispute resolution clause is extremely beneficial in a small business contract. This area of the contract will outline how potential disputes will be handled and whether or not the resolution will need to take place in court. Disputes that can be handled inexpensively and/or privately typically result in better business relations. 

6. Will You Include a Force Majeure Clause?

Force Majeure clauses consider the possibility of a potential catastrophe that prevents one party from fulfilling their end of the bargain. These clauses allow a party to exit the contract (temporarily or permanently) in the event of an unforeseen disaster without breaching the contract. 

7. Does Your Contract Adhere to the Governing Law?

Do you know the governing laws that will oversee any disputes in your contract agreements? These are primarily dependent on the state you’re in, but local laws could impact your contracts as well. Make sure your contract includes a governing law clause so all parties are certain of the laws they must adhere to. 

8. Do You Know Where Contract Disputes will be Resolved?

Do you have a specific court or jurisdiction that you’d like to handle your contract disputes? Are you aware of the dispute resolution process you will take? Venue and forum selection clauses can be helpful for identifying a certain state or venue in which disputes will be litigated. They can also outline specific resolution processes that should be taken, including mediation and arbitration. 

9. Does the Contract Include All Terms Agreed Upon?

Have you been discussing potential contract terms with the other parties in other venues and platforms? Or, maybe you’ve already had a working relationship with this individual and are ready to make it official? Integration clauses are beneficial in contracts for superseding any previous negotiations. They establish terms and agreements that are superior to any of those agreed upon before and create a fresh relationship going forward. 

However, it’s important to note that once a contract with an integration clause is signed, the language in the contract becomes binding. After an agreement is signed, it doesn’t matter what terms were discussed or negotiated if they weren’t in the contract. All that matters after signing the contract with an integration clause is the language within the four corners of the document. 

Is Your Small Business Contract Enough to Keep You Protected?

A small business contract might be an everyday occurrence for many professionals, but it’s never something that should be taken lightly. Your contracts keep you satisfied, fulfilled, and protected in the business world. They deserve a lot of consideration and preparation and most businesses will create a variety of templates to cover all of their needs and reduce liability. 

Busy business owners can struggle in this arena though. And, that’s where a qualified, experienced professional can come in handy. Business owners can benefit from hiring an attorney to review their contracts, if not create them from scratch. A business attorney could help make your business transactions more efficient by revising your contracts and adding key components to reduce liability and risks.