6 Ways to Avoid Mistakes
When Writing a Business Contract

See also: Avoiding Misunderstanding in Negotiation

In the business world, mistakes in a contract can cause a promising business to close its doors. Contracts are used at every point of business from hiring employees to the service agreement made with clients. Consequently, learning how to avoid common mistakes in business contracts is something every owner should be aware of.

If you are trying to figure out how to write a business contract, this guide will show you exactly what to include and what you need to be aware of to protect your business.

Glasses and pen on an open notebook.

1. Do the Research

Creating a start-up is not as easy as signing on the dotted line. Even if the business is a franchise there is a lot of paperwork to go through to get off on the right foot. Subsequently, quite a bit of work will go into making sure that all points have been covered. Think about the industry the business is in and what the organizational structure is. Both of these will help decide what contracts will be needed and for what purpose.

To keep from making several common mistakes, take a moment to think about what the needs are and how to cover them.

2. Know the Differences between Business Location and Job Location

Being located in one jurisdiction does not necessarily mean that the state and/or county is the ruling authority. Another consideration is where the actual work will take place. For example, an HVAC company based in Virginia may also be providing services in the District of Columbia (Washington DC).

Due to the nature of the work involved any needed permits have to be gathered from the correct venue: Washington DC. Permits are the companies' contract with the county or city where the work is performed that it will be done correctly and pass inspections.

This school of thought is also applied to companies that are just online. For example, many online gaming sites include wording that says that a player must abide by the rules of the country they are playing from.

3. Identify Every Party

Using incorrect information in the contract is another mistake that is easily avoided. Here's how:

  1. Be sure that the company or persons are listed correctly. The contact person may have been Peter Gambit, but the company is ABC LLC and should be listed as such. If the business is being conducted by an individual, then the contract should specify their name.

  2. Use language that identifies all parties involved and what words indicate whom. This is usually some variation of:

    "For the purposes of this Agreement, those referred to as the contractor, specialist, etc., will be known as...."

  3. Intellectual property is as valuable as ever. Protecting it can include everything from having employees sign non-disclosure agreements to registering trademarks or the company name and logos marked with trademark symbols.

4. Check the Details

A written contract is the most accurate way of outlining the responsibilities of the parties involved. This may also include timelines for when particular parts of a project are supposed to be completed. However, there are other aspects that need to be included.

a. Termination of Contract

Termination of the contract can happen for a variety of reasons, and it should be noted what those reasons are. The contract should also outline how the parties involved will be notified of when the agreement is coming to a close.

b. Delivery of Goods or Products

When it comes to the delivery of goods and products, there are a few other tips to keep in mind. How and when the deliveries will happen become the top concerns of the contract.

For instance, shipping some goods and products on a contract-basis only. The best way to understand this is to think of a subscription service. Signing up is the contract, and as long as they are a member, the subscriber will receive goods on a predetermined schedule. Once the agreement has ended, they will no longer receive products.

However, for the duration of the contract, the business has to keep track of vital information such as the delivery address, how the products will be shipped, billing information, etc.

c. Breach of Contract

How disputes can be settled is an important aspect of the agreement for both the business and the client. Both parties need to be aware of what measures can be taken in case of a dispute and when court litigation is needed. Breach of contract letters is a good way to let the other party know that they are in danger of faulting on the initial contract.

Even if the contract is ultimately ended, taking appropriate steps can minimize issues later. The best way to end an argument is before going to court.

Signing a contract.

5. Review Before Signing

You always want to make sure that you fully understand your company's responsibilities and liabilities before signing any contract. If you enter into a contractual agreement with another party and don't hold up all of the terms and conditions specified, you put yourself and your business at risk.

Another good way to minimize disputes over a contract is to discuss the points with potential clients. This helps them know what it is they are signing and if there is room for further negotiation. Keep in mind that some items may be industry-specific, so it helps to review the paperwork.

6. Get Help

Cookie-cutter contracts might be a good resource to start with but should not be used without careful review. This means talking to someone with experience and getting assistance in making the changes.

There are various forms of contracts and each one serves a different purpose. Fortunately, getting help with understanding the difference and writing the contracts can be found with a good lawyer or consultant.

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About the Author

R.S. has been writing and drawing for as long as she can remember. She recently relocated from Thailand to Brisbane but loves to travel all over the world if the situation allows her to. Lately, she's been a little bit obsessed with her side business, stationary items and good books.