Key Contracts Your Business Needs Right Now

As a business owner, you want to protect your reputation and your livelihood in every way possible. Legal contracts are the best way to ensure mutual understanding between parties to any transaction. If a dispute ever arises, you'll have the written documentation to back up your word and protect your assets. While the number and types of contracts a businessperson needs will depend on their unique circumstances, here is a rundown of some of the most common.

Loan Agreements

Businesses often need to borrow money. Whether it's to finance an expansion or meet upfront costs to deliver a big order, a loan can be a lifesaver. It is common for a loan agreement to spell out, among other things, the total cost and the payment schedule. Before agreeing to a lender's standard contract, make sure you can realistically comply. Using generally accepted accounting principles, including proper revenue recognition, will ensure you're entering the agreement with a clear understanding of your business' cash flow and ability to make loan payments on time. Don't hesitate to ask for the contract to be customized if necessary to ensure it's equitable for everyone involved.

Leases

Renting the physical space to conduct your business is a huge commitment. This type of contract, known as a lease, is generally biased towards the landlord's interests. Before signing such a major commitment, make sure the lease spells out all the terms. Specifically, you'll want to make sure it doesn't limit the use of the space in a way that would hinder your business operations. Ideally, there is an allowance for lease renegotiation, including the right to extend, in case your business is booming at the end of the lease term, and the right to sublet, in case it's not.

You'll also want to ensure that the monthly rental amount is competitive and that the building meets all your needs. Knowing what the landlord's obligations are, especially in terms of maintenance and communication, is also key.

Sales Contracts

If you're in the business of selling products like machinery or other relatively high-cost goods, you'll need to enter into sales contracts with your customers. Of course, if you operate a small corner store or boutique selling single items to individual consumers, you probably won't need sales contracts. For larger ticket items, you will want the sales contract to specify the price, terms of payment, warranties, and any limitations on liability. The terms of the contract can be spelled out on your standard order form or can be individualized to each particular sale.

You'll also enter into sales contracts with your suppliers. In this case, you are the customer and the vendor is laying out the terms of the sale. As with all contracts, be sure you read and understand all the fine print before accepting it.

Service Contracts

If instead of selling a product, your business provides a service, you will need a strong service contract. This type of contract stipulates not only price and payment terms but also your responsibilities. It's common to list fees and timeframes for the job, allowing for flexibility in time and money in case unforeseen circumstances arise. Setting limits on your liability in the event of some sort of damage resulting from the work is critically important.

You'll also need contracts with anyone who provides services for your business, such as janitorial and accounting. The same standards as above hold for these service contracts as well.

Employment Contracts

You can prevent misunderstandings and potential lawsuits by presenting each new hire with an employment offer letter which they must sign before beginning work. This ensures that expectations on both sides are laid out and agreed to. The offer letter should include the salary and benefits, responsibilities of the job, and any relevant confidentiality or non compete agreements. The terms of employment can be amended in the future, but make sure any changes are put in writing and signed by both parties.

Legal contracts provide you, your customers, vendors, and employees with the reassurance that everyone agrees with the terms of the relationship. If a dispute arises, contracts are the roadmaps that lead to its resolution.