The world is based on a series of transactions and each day, transactions are occurring to keep global commerce moving forward. Transactions are referenced in contracts to protect the sanctity of the agreement between two parties doing business together; moreover, contracts provide individuals and businesses with a legal document stating the expectations of both parties and how negative situations will be resolved.
Contracts often represent a tool that companies use to safeguard their resources. They are legally enforceable in a court of law which is a part of the grievance process to enforce contractual rights. As you can see, they are a necessity for every business.
Despite the importance businesses place on having a good contract governing a transaction, businesses tend to let their contracts fall by the wayside. Specifically, like a car, a contract needs maintenance too. Despite the fact that the business world is overwhelming and busy, businesses fail to find the time to keep up with changes in the law and the changes to their business. It is this problem that often catches up to a business and can create more legal problems (expensive ones I might add) for a business than what was originally anticipated.
How does a business know what to look for or know that changes are needed to ‘audit” its contract? The place to start is reviewing the transactions and situations the business has dealt with during the past quarter (3 months). Business will face trouble with their clients or even internally with their own employees; thus, it is imperative that the business learn from these situations and use them as teaching moments to put provisions in contracts that will add layers of protection and make bad situations work out favorably. It is recommended that these “audits” for contracts take place on a quarterly basis; however, every business is different and speaking to an attorney can help provide an auditing time that fits the business.
Also, if a contract cannot be changed because it is signed and binding, people often forget that contracts also can include a process for making changes or addendums to the agreement. The addendum is an often forgotten tool that can modify the terms of a contract to account for a change in circumstances that may not have been contemplated by the parties at the time of contracting.
In the end, it is cheaper for a business to hire an attorney to do a cursory review of its contracts and make the necessary edits and revisions than it is to handle an expensive lawsuit that arises out of an outdated contract missing material terms to a transaction. Think of it as nothing more than a quick audit or as I stated earlier, like maintenance to your car. Sure it may have a small cost to it, but the cost of auditing your contracts can save you more than paying for hefty lawsuits – or a brand new car.
Of course, no one knows their business better than the owners and creators of a business; nevertheless, legal advice should be sought before making any change or alteration to an existing contract, or entering into any binding contract. Small businesses may be susceptible to larger businesses taking advantage of a new business or entrepreneur’s willingness to complete business functions without truly knowing the liability that exists in a contract. Contracts often include difficult legal terms that many business owners fail to understand.
Attorneys can provide clear information on the benefits of business contracts and whether small businesses should agree to specific contractual terms and whether their contracts are up to date with the demands and lessons the business has learned over the course of the previous quarter or year. Ultimately, there is no substitute for experience, and knowing that you had bad experiences in business is something to learn from – not dread. It is a direct warning sign that your contract may need to reflect the times you are in and to have contingencies in your contract that protect all of your business interests.