The below five items are simple items that everyone who signs any contract should check before signing. You should read the entire agreement (I must say that as a lawyer). However, since I understand business folks like to skim contracts to get the gist, I wrote this article to address some shockingly common mistakes. Skimming often leads to business folks not checking for critical items that impact the deal’s value. These skimmers later realize that they have an agreement with the wrong entity, don’t know how or when they are getting paid, and don’t know how to terminate the contract if the payment amount is consistently incorrect. So, below are five items you should check before signing any business arrangement:
- Names. Whom are you contracting with, and did they get your name right? Do you want to be named personally or your entity name? Does it correctly list your entity type as an LLC, Inc., or Partnership? Are they using a branded name that is not a legal entity at all? The wrong entity name can create MAJOR problems like you not having any rights to receive payment, or if a dispute arises, the entity with whom you have a dispute was not the legal party to the contract; thus, you cannot recover under the terms of the agreement.
- Payment Method. How EXACTLY are you getting paid? Check or credit card, and when? If it is a service contract and payment is owed up on completion, who determines what is “complete? The details of payment terms are shockingly quickly looked over but impact each party’s bottom line.
- Payment Amount. Exactly HOW MUCH are you getting paid/need to pay? Is the amount listed in the contract correct, is the amount listed in the contract at all? Who is responsible for taxes? Are there any reimbursable expenses that are expected? Is a party allowed to tack on a percentage to those reimbursable expenses? The fine print in payment amount terms can lead to incorrect budgeting and hidden fees to which you agreed.
- Changes. How does either party change the contract? How easy is it to add to the order or the services or make changes to the request? Does the service provider get a say, or can the client demand changes to the original scope of work? Is the Service provider getting paid for all changes or just significant changes to the scope of work? If a party can change a contract on its own or without giving each other enough time to review and respond, the agreement you entered into could quickly become an agreement you want out of.
- Termination. When does it end? How does the contract end; when the service is complete or when the items have been dropped off? Can you terminate the contract whenever it is convenient for you? Can you terminate the agreement when the other party breaches the contract? How does the contract end if there is no issue, and CAN the contract end if there is an issue? You should always know how a contract ends before it begins.
Hopefully, by now, you see that it is critical to review key elements of any contract before signing to avoid potential problems down the road. The five items discussed in this article – names, payment method, payment amount, changes, and termination – are simple but often overlooked. Reviewing and understanding these details carefully can help ensure that the contract accurately reflects the parties’ intentions. As I stated earlier, reading the entire agreement thoroughly and not simply skimming it for the gist is best. Doing so can avoid common mistakes that lead to bad deals.