How to Protect Your Business with Contracts

As a small business owner, you may have considered entering into an agreement based on a handshake or good faith instead of a legally binding contract. The problem with spoken agreements is that problems or misunderstandings can and often do occur. Unfortunately, this can spell lots of trouble for your business in the form of liability and losses. Not having a contract can leave your business vulnerable and susceptible to major financial losses. That’s why it’s important to have a written contract between you and the other party that can act as proof of any and all agreements regarding your business. This will not only protect you business financially, but it can also help you avoid stress and emotional hardships. Let’s look at a few of the ways in which contracts protect your business.  

Record and Proof of Commitment

Business contracts serve as a written record of the scope of work, payment terms, termination, timeline, etc. This document provides legitimate proof of the terms and conditions that both parties have agreed upon. 

Clearly Describes Obligations and Responsibilities

Contracts detail important details and information regarding the specific actions or services each party will perform. It contains any deadlines for performing these actions as well as consequences that might result from failing to meet obligations and responsibilities. This is evidence of all terms and conditions that have been agreed to by both parties. 

Minimizes Conflict and Mitigates Risks

Contracts typically go through a negotiation phase that allows both parties to seek a mutual agreement. This process helps to minimize any confusion or concerns, as each party knows exactly what their responsibilities are within the contract. In the event that a discrepancy occurs later down the road, the contract serves as proof of the commitment made by both parties.

Provides Legal Security

Legally binding contracts can help protect your business from significant financial losses. For example, imagine you have a customer that is refusing to pay for services that you have provided. This financial loss could significantly impact your business if you don’t have proof of your agreement. A contract that clearly states the obligations of both parties can give you the proof you need to take appropriate action against breach of contract issues. 

Elevates Your Authority

If a customer has to sign a written contract, not only does that imply they are serious about purchasing your product or service, but it also shows them you are serious about your business as well. This builds trust between both parties and minimizes the chances that the customer doesn’t hold up their end of the bargain.