Contracts are an established part of any business, whether it is big or small. However, these legal documents can be particularly vital to the success of a small business. Choosing the right contracts and knowing when to utilize them is critical to small business success.
Contract 101
Contracts should be designed to be straightforward and clearly outline terms between two parties. In your small business, those two parties could be your business and a customer, your business and a vendor or even your business and another business. Contracts can be verbal, but a written and signed contract is always best legally. A contract should include:
- The period of the contract
- Payment dates and details
- Damage and penalty provisions if a breach occurs
3 Reasons Contracts Are Essential to Small Businesses
- Contracts help to limit the damages that your business could incur if an unintentional mistake or tragedy occurs. In creating a contract, the indemnification section will detail when and how much you are liable if something occurs. In many agreements, damages will be capped at a certain limit to minimize your financial liability.
- Partnership agreements are common in many small businesses, and they aren’t necessarily protection for your business. Instead, they formalize the agreements that you have made and define responsibilities, compensation and even how decisions will be made over the course of a project. Partnership agreements often never need to be utilized, but in the event that a relationship goes sour, you will wish that you had one on file!
- Confidentiality contracts are used to protect the proprietary information and intellectual property of your business. These tools can make it easier for your small business to use third parties when launching new products, working on marketing materials or expanding. They guard your “secret sauce” and help small businesses to act without a heightened fear of losing a competitive advantage through a breach.
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