Creating and negotiating contracts is something you’ll do routinely as a business owner in the UK. You must get a good grasp on them. Not only will it allow you to mitigate the risks of doing business, but it’ll help you negotiate fair terms for your company.
Here, Online Shopping Blog covers everything you need to know about drafting business contracts for your online or brick-and-mortar business:
What are business contracts?
A contract, according to the Small Business Commissioner, is a legally binding agreement between two or more persons and entities. You can divide them into two broad categories: Business to Business (B2B) and Business to Consumer (B2C) contracts. They can be verbal or written. The former is difficult to enforce because they rely on the good faith of the parties involved. Written contracts include letters, documents, forms, and similar containing the details of the agreement. These are easier to enforce.
Why you need to care about business contracts
Understanding the ins and outs of business contracts is critical for the following reasons:
- Clarity: When all the parties involved have a written copy of the agreement involved, it prevents misunderstandings and keeps everyone on the same page.
- Protection: Your company is protected against false claims and you’re able to obtain legal compensation for unfair practices.
- Compliance: They allow you to remain compliant with the law. For instance, you’re required to put down employment contracts in writing.
- Better relationships: Having a written contract offers peace of mind, which can build trust between parties and improve relationships.
- Locking in: Once you have an agreement on paper, you have a locked-in deal for trade or monetary arrangement.
Other reasons include having a framework for negotiations, extending a company’s brand, and maximizing operational efficiency.
What contracts must include
For contracts to be legally-binding in the UK, they must include 6 essentials: an offer, an acceptance, the intention to create a relationship, an exchange (money or similar), legality (fairness as defined by law), and certainty (agreement on contract essentials). This is the legal standpoint.
From a business standpoint, especially in the case of B2B contracts, you should ensure that cover several other critical details:
- Dates: The commencement date, the end date, milestones, payment due dates, and the length of the agreement.
- Details of the transaction: The product, service, or similar being offered or exchanged.
- Price: The exact monetary details, including the price per unit, the number of units, interest, duration, payment terms, discounts, frequency of transactions, and more.
- Signatories: This covers the details of the parties involved in the transaction, including the registration numbers of the companies.
- T&Cs: Terms and conditions like agreeing to a certain standard of service prevent abuse from other parties.
Have a solid negotiating strategy
When it comes to B2B contracts, a strong negotiating strategy is essential if you want to secure a fair deal. Researching the company – and person – you’re negotiating with allows you to customize your strategy to the situation at hand, maximizing your odds of success. If you can figure them out – their motives, desires, and what makes them tick – then you have more leverage. Some ways to research the company are querying industry contacts, researching stocks, or simply doing a Google search on the company involved.
The other elements of a successful strategy, with some tips from Start Up Donut, include:
- Must-haves: You’ll build your strategy around your objectives.
- Deal with the right person: Only deal with people who have the authority to make decisions.
- Keep it confidential: Don’t spread the word about your deal.
- Don’t play games: You may gain an initial edge, but it may spoil your relationship and affect future deals.
- Concessions: Make concessions if there are trade-offs.
- Price: Be very careful with the price. Pitch high and meet the other party somewhere in the middle.
- Focus on the long-term: Try to steer short-term deals into long-term ones (when beneficial).
Tools to present, edit, and modify contracts
Contracts are convoluted, involving countless details and hoops for you to jump through. Fortunately, you can use software apps to present, edit, sign, and modify contracts. For instance, when a contract needs to be changed, rather than typing up notes, you can use an online PDF editor to add comments to it directly. If you’re unfamiliar with how to edit a PDF, it’s as simple as uploading the file, using the on-screen editing tools, and then downloading it for use. Prioritize tools with highlighting and stick notes. Other tools you should consider are office utility suites (like MS Word) and online document and signature solutions (like PandaDoc).
Getting good at understanding, creating, and negotiating contracts will stand you in good stead as a business owner. Finding and partnering up with an expert lawyer or business consultant is also a good idea – they can inform you of critical details you wouldn’t otherwise know and generally help you draft airtight contracts.
Image via Unsplash