Before You Sign That Contract…
When presented with a contract to sign, many business owners quickly check the cost and sign away. Too often, however, these contracts contain terms that are far different than what the business owner thought he or she was committing to. Whether it’s a lease, a lease renewal, or a contract for services or products, the language and terms of a contract can have a huge impact on your bottom line—for better or, more often, for worse.
Despite What You May Think, Your Salesperson Is Not Always Your Friend
It’s not unusual for my clients to develop a relationship with a supplier or service provider and come to trust them. Your new “friend” gives you a multi-page contract filled with fine print and discusses the key economic terms of the arrangement, but little else. In fact, you may have negotiated better terms, and, proud of your negotiation skills, you neglect the many other terms and conditions buried in the contract.
The provider might say something vague like, “Sure, it’s a five-year term, but don’t worry about it. If it’s not working out for you, just let me know.” In reality, that person might be gone when a problem arises, or he or she may have little to say if you are sued for breach of contract. In other words, his reassurances, even if well-intentioned, might be hollow.
Do the Math
One of my clients contemplated using an Internet-based shopping and delivery service, believing that attracting new customers to his store and the incremental sales was well worth the investment. Upon my review, however, because of the costs charged to my client, what seemed like a straight-forward deal would actually result in my client losing money in the majority of such sales. When I brought this to my client’s attention, he realized it was not as good a deal as he initially thought.
You Should Be In It for the Short Haul
Long-term contracts should be avoided whenever possible. Rarely do providers make such a sizable investment to justify a long term. In fact, you often don’t even get price protection as contracts typically have provisions that allow the provider to increase prices throughout the term. And, as if the long term was not bad enough, automatic renewals are common, thus locking you in for a long, long time if you fail to keep track of narrow termination windows.
Although there are costs involved in sending your contracts to counsel for review before you sign, the costs are usually far less than the cost of defending a lawsuit. A well-negotiated contract by an experienced attorney often results in better pricing, shorter terms, and flexibility should a better opportunity arise.
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