8 Reasons Why You Need Business Contracts
Hey entrepreneurs, Daymond John “The People’s Shark” here. Today, I want to talk to you about something that's been a cornerstone in my journey and should be in yours: the undeniable power of business contracts.
When I was getting FUBU off the ground initially - especially since I was mostly dealing with people from my community that I knew and because I was intimidated by legal paperwork - a good old-fashioned handshake was good enough for me.
But as I had more success and we were selling products all over, I quickly realized that trust and handshakes weren't enough. You see, we were fortunate enough to get into major retail stores across the country - and even the globe. I learned very quickly, though, that I needed to pay close attention to the contracts being put in place for these deals. Retail can kill a business just as quickly as it can help a business grow. I got burned one too many times and ended up being out a lot of money in inventory by not understanding what we were agreeing to or not having proper terms in place to protect my business.
Looking back, I needed something concrete and enforceable, and it would have been great to have access to resources and expert advice from the start. Lucky for you, Rocket Lawyer has affordable, customizable, and e-signable legal documents available for hundreds of different purposes, so you’re never starting from scratch. Their legal experts can also review your contracts and address any concerns or potential issues. Plus, when you sign up for Rocket Legal+, you get up to half off attorney services. A great deal if you ask me.
Whether or not you decide to consult a lawyer, I always encourage you to do your homework and educate yourself, just like I did.
So, to help you out, here are the 8 most important reasons entrepreneurs need business contracts:
First, they Provide Legal Protection. At their core, contracts are your legal safety net. A well-drafted contract serves as a legally binding document, offering protection in case of breaches or disagreements. It outlines the agreed-upon terms, which can be enforced in a court of law if necessary. Meaning if someone doesn't hold up their end of the deal, you've got a solid foundation to stand on in court. No contract, no protection.
Second, they Establish Payment Terms. When doing any sort of partnership or agreement, it’s always crucial that everyone is clear about the money behind a deal. With a contract, you lay out the specifics: how much, when it's due (is it based on a specific date or when something is delivered), and how it's paid, and what happens when it's not. This helps ensure that you, the business owner, get the money you are entitled to. And on the flip side, when you’re on the other side of the contract, it helps ensure that you get quality products or services when you’ve paid for them.
Number three, a contract should clearly define the Scope of Work. Every business deal is a partnership. And like any partnership, both sides need to know what's expected. Your contract should outline deliverables, timelines, and specifics. It's your mutual blueprint of what’s expected from each side of the partnership. This helps prevent misunderstandings or disputes, which do happen from time to time. We are all human and miscommunication happens, so it's important to protect yourself and try to avoid these things from the jump.
Fourth, they Protect Intellectual Property: If you've got a unique idea, product, or service, you need to protect it. Contracts ensure that what's yours stays yours, from logos to business strategies.
Contracts can include clauses regarding the ownership and use of intellectual property. This is crucial for businesses dealing with proprietary information, like copyrights, trademarks, trade secrets, or patents – all which Rocket Lawyer can help you with too.
Number five, they Maintain Confidentiality. In the business world, information is power. Sometimes, you need to share sensitive info. A contract can ensure that shared business secrets stay secret and don’t end up in someone else's inbox. And contracts can include confidentiality or non-disclosure clauses to protect sensitive information shared during the course of the business relationship.
Six, contracts demonstrate Professionalism & Credibility. When you present a contract, it sends a message to your clients, suppliers, investors, and other key stakeholders. It says you're serious, professional, and you value the relationship. It's a sign of maturity, trust and commitment. I love the famous quote from Maya Angelou that says “People will never forget how you make them feel.” And remember in business, making people know you’re professional and credible are great attributes.
Number seven, they provide Exit Strategies. Business relationships don’t last forever. Sometimes, paths diverge. A contract outlines how to part ways gracefully, and on friendly terms, ensuring both sides are protected and minimizing disputes.
And finally, contracts Provide Options for Dispute Resolution: Look, disagreements happen. But with a contract, you can establish a roadmap for resolution, be it mediation, arbitration, or other methods. This can be faster and less expensive than going to court. Trust me, you don’t want to go to court if you can avoid it. It's about finding solutions, not problems.
OK. So now you clearly see why contracts are so important for you and your business. And don’t forget, with a Rocket Legal+ membership, you get affordable access to thousands of customizable legal documents, as well as big savings on legal services to make sure you’re protected and on the right track.
So what are you waiting for? Sign up for a free 7-day trial with Rocket Legal+ and get the one membership for everything legal.
