Understanding Business Contracts When You’re a New Entrepreneur
Starting a new business requires interacting with clients, partners, and vendors. And if you want to avoid misunderstandings and possible litigation, putting together solid contracts and agreements for all parties involved is an absolute must. To explain it further, here are five reasons you need business contracts if you want your company to thrive for years to come.
Establishing Your Business
Forming a business may require you to sign contracts such as partnership agreements, shareholders agreements, and service agreements that define your duties and obligations. And once you draw up your business plan, you’ll need to decide on a business structure: LLC, sole proprietorship, C-Corp, or S-Corp. An LLC, or limited liability company, is the most common because it provides you liability protection and tax benefits.
Once you’ve decided on your structure, you’ll have to establish your operating agreement in order to stay compliant. This document will outline how your business operates as well as lay out its financials. Even if your state doesn’t require an operating agreement, it’s a good idea to have one in place so that all stakeholders are on the same page.
Honoring Agreements
As a business owner, you will have to deal with different types of contracts: sales-related (such as bills of sale and purchase orders), partnership agreements, non-disclosure agreements, employment contracts, and compensation agreements, just to name a few. And although verbal contracts can be enforceable, it’s much better to put things down in writing and to get all parties to agree and sign on the dotted lines. That way, if one party is in breach of contract, they will be liable for monetary damages or other equitable forms of relief.
Creating Contracts
Online tools make it easy to create contracts, edit them as needed, and share them with others. The first step is to choose a template that fits your needs. You can then edit the template to include the specific details of your agreement. Once you’re satisfied with the contract, you can sign it electronically and send it to the other party. Eventually, you’ll likely want to spin off new contracts or overhaul existing contracts as part of renewing your agreements. When this happens, you can expedite the process by extracting the parts you need, rather than creating something from scratch. With an online extraction tool, just extract the pages you want to formulate a new contract.
Negotiating Payment Terms
When drafting a contract with a vendor, service provider, or supplier, it’s best to know where your company stands financially in order to come up with payment terms that won’t leave you in the red. Using integrated accounting software will let you manage all your business finances on one platform. You’ll also get cash flow insight in real-time so you’ll always know where you stand, and your accounting will be greatly simplified, leaving you more time – and cash – for production, delivery, advertising, marketing, and customer service.
Getting Paid on Time
There are a few key things you can do to help ensure you get paid on time. First, be sure to send your invoices as soon as the work is completed. This will help to avoid any delays in payment. Second, be clear and concise in your invoicing. Include all of the relevant information, such as the date of service, the amount due, and your contact information. Finally, follow up with clients who have not yet paid their invoices. A polite reminder can often be enough to prompt them to take action.
Preventing Conflicts With Employees
Whether you’re hiring full-time or part-time employees, make sure you have an employment agreement in place signed by both parties that clearly defines and explains the job to be performed, the hours worked, and the pay rate or compensation, as well as any benefits such as paid leave and sick pay, 401K, or health insurance. In order to protect your business’s intellectual property, know-how and clientele, your employee contract should also include a non-disclosure clause and a non-compete clause. And when hiring freelance workers, make sure you have an independent contractor agreement to protect your business.
Contracts are an important part of doing business. When all parties agree on the scope of a project and on the terms of an agreement, processes can run smoothly. But make sure you don’t rush into anything and take time to understand all the ramifications before signing a contract.
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