Do I really need written contracts for my business?

As a lawyer, I am constantly amazed at how much business is done without the benefit of written contracts. I can also tell you that I have earned a good living as a trial lawyer dealing with the resulting mess of having no written contract.

Sometimes, business relationships proceed without a hitch despite no written agreement, but more often or not, and sooner or later, a dispute arises and you’ll wish you had put your agreement in writing.

Here are a few reasons why you should make written contracts an indispensable part of every business transaction you enter.

1. You are forgetful (and so is everyone else). You should understand every word of your contract and so should the person signing it. A written contract allows each side to fully understand what they are agreeing to, and refreshes their memory later on because all of us forget things. It will save everyone time, as well as countless emails and phone calls, if your contract answers the common questions that will come up in the business relationship.

2. Contracts explain to potential customers how you do business. Potential customers should be able to review your contract before signing so they can understand how you conduct business. If potential customers repeatedly back out when it’s time to sign, maybe you need to make modifications to how you are doing business, or maybe they aren’t the right customers for you.

3. Board members and business partners may need to review the contracts you’ve signed. Your business partners, board members, and shareholders will see the contracts you negotiate. Even though they may not have been present for the actual negotiations, they should be able to easily understand what the company has committed to, within what time frame, and what the expected compensation is. It is also important to know what would happen if your company found it necessary to breach the contract.

4. Funding sources may need to see your contracts. Whether you are applying for a loan, seeking angel investors or new stockholders, they all might need to see your existing contracts in order to evaluate the nature and scope of your business, expected revenue streams, and staffing commitments.

5. Potential buyers will want to see your contracts. If you anticipate any mergers or acquisitions in your future, keep in mind that due diligence prior to any such transaction will involve a review of your contracts for the same reasons funding sources would look at them, though perhaps from a different angle.

Contracts don’t need to be complicated, but any competent business owner knows they should always have it in writing.

Even if you don’t hire a lawyer to draft one (I’m realistic, I know at least 75 percent of you won’t) write a document that thoroughly explains what everyone is committing to, and when, where, and how.

Lastly, don’t forget to include the payment terms, and have everyone involved sign the contract. 



DISCLAIMER: Although the author, Melody A. Kramer, is a licensed attorney, the contents of this article are intended to of a general educational nature, and are not intended as legal advice on any particular client matter and does not create an attorney-client relationship with any readers.