By Debby Winters
Every day I meet with clients with problems both large and small. They come to me seeking advice, counsel, and hopefully nuggets of wisdom that I have gained over the years working with start-up businesses. I would hope that my clients are being proactive by wanting contracts drawn up prior to work being done, advice prior to entering into a situation, and insight into the right ways to do business. However, that is usually not the case. Usually they are coming to me because they are confronted with a situation that has gone bad.
Here are five nuggets of wisdom that I wish business owners knew to ensure spending less time worrying about legal issues allowing them to focus on running their business.
- A Bad Contract May Be Worse than No Contract
I’ve repeatedly had clients come in with contracts that are inappropriate for the situation. For example, the contract may be for a license to a website rather than ownership of it Other contracts may contain insurance clauses with limits that are too expensive to find, if not impossible. Inappropriate contracts may end up costing more in court costs because you are litigating issues that you don’t have to or because terms that really should be in them are missing.
When you are signing a contract, you need to make sure that the contract is appropriate for the situation. If you don’t understand that terms and conditions of the contract, you need to make sure you are educated on them before you sign it.
Often times template contracts have been used rather than consulting an attorney. I wish clients would realize that spending the money now to get good advice will be cheaper in the long run.
- Read Contracts and Documents Before You Sign Them
I am always surprised at how many people sign contracts without reading them, much less understanding them. You need to read every contract that you sign for your business. Whether it is to lease a copier for a year, to have a website developed, or simply to prepare your tax return, you want to read and understand it. You also want to make note of any term that you may need to remember.
Does that copier lease have a deadline you must terminate by so that it doesn’t automatically renew for another year? If so, you want to make a calendar reminder to ensure that if you want to cancel, you still can. Does the services agreement for that website have payment terms in it that must be complied with in order for the service to avoid being put on hold?
Regarding understanding contracts, if you don’t understand the contract, don’t sign it until you do. You may be getting into a triple net lease that costs two times more than you expected each month, simply because you don’t understand how a triple net lease works. Ignorance is no excuse after you have entered into a contract for not complying with its terms.
- If It Sounds Too Good To Be True, It Probably Is
If you have someone ask to invest in your business and the terms are absolutely fabulous, unless it is your mother, it is probably too good to be true. Getting a website remade for $5,000.00 when the next closest bids were in the $10,000.00-$15,000.00 range? I would consider betting money that your $5,000.00 website isn’t going to be what you expected, especially if you thought it would be the same as the other bids. In rare cases, you may be able to get a deal.
Nevertheless, most deals usually come with fine print. A student may charge you a lower rate to design your logo because he needs something for a portfolio. However, it may take much longer than if you hired a professional or may not get done at all. You should always carefully evaluate what you are paying and what you are realistically going to get.
- Know Your Finances
After a few years in business, you may not manage the finances for your company on a daily basis like you did when you first started. However, you need to make sure you keep up to date on what they are, at least monthly. Unfortunately, embezzlement does happen. If you don’t know what is coming in and going out of your company, you can’t know if someone is doing something nefarious with your money.
Although hopefully your tax professionals are competent; things do get overlooked and small changes can make a big impact on your bottom line. If you hire an employee in a new state, you may be required to start collecting sales tax from online sales to people in that state. If your CPA wasn’t told that you hired this new person, you may face penalties and fines by the new state for non-collection. Raising prices by several cents on your top products may generate thousands more a year. Knowing your finances makes you a more successful business owner.
- Advice Is Only As Good As What You Pay for It
Lastly, your advice (and contracts) is typically only as good as what you pay for. I have had countless times when potential clients come in with contracts that they have downloaded online, both for free and for nominal fees from paid sites, or that they have pieced together from contracts that they had from former employees or competing businesses. In some cases, they are lucky that there are only a few terms that aren’t in their favor. In most cases, the results can cost tens of thousands of dollars.
When using former employers’ contracts or your competitor’s contract, you may have issues beyond having a bad contract. Unless the company had the contract professionally written, you may be using a contract that isn’t going to protect you. Worse, if you have a confidentiality agreement or other type of intellectual property agreement with your former employer, by using its contract as your own, even with modifications, you may be in violation of your agreement with the company.
Overall, I tell my clients that getting professional advice, whether from an attorney for legal issues, a CPA for accounting issues, or even a marketing person for branding guidance, to begin with, may appear costly. However, it can save you hundreds, if not thousands, of dollars in the long run.