The 7 Contract Mistakes Most New Entrepreneurs Make
All new entrepreneurs need to draw up contracts to be successful, whether it’s cementing partnerships or engaging a client in a long-term deal. However, contracts can be messy and complicated for new entrepreneurs. Too often, they take shortcuts or overestimate their abilities, ultimately resulting in flawed contracts or major mistakes that interfere with their future potential to succeed.
The more you understand about contracts—and about the mistakes that most new entrepreneurs make—the more successful you’ll be in writing up and finalizing your own.
Common Mistakes By Entrepreneurs
These are some of the most common mistakes new entrepreneurs make:
- Relying too heavily on templates. Thanks to open source communities and the realities of the digital age, contract templates are easy to find online. For a small-time freelancer, these are usually good enough to provide some basic legal protection and ensure follow-through on your agreements, but in a business environment, templates aren’t always the best choice. Over-relying on templates can lead to serious holes in your legal strategy, especially if you use the same ones repeatedly without making them your own.
- Failing to secure digital signatures. Relying only on physical signatures can slow your business down, so it’s a good idea to get digital signatures whenever possible. However, not all digital signature services are equally secure. You’ll need to do your research and get an eSignature device that’s compatible with the software you use and secure enough to trust in your most important contracts.
- Skimping on technical or specific language. If you’re writing your own contract from scratch, you’ll be tempted to write in plain terms, skimping on technical or specific language in favor of generalities. However, with contracts, it’s a bad idea to leave anything to the imagination, or leave certain clauses ambiguous. Those ambiguities can easily be taken advantage of, so be as specific and technical as you can.
- Not consulting a legal professional. If you have experience with contracts, or you’re using a template you constructed, you don’t necessarily have to consult a professional every time you negotiate a new deal. However, when building your initial series of templates, or when working on a bigger project, it’s essential that you get some legal help. Contract attorneys will be able to point out mistakes you don’t even know you’re making, or can help you clean up your language so it puts you in a more advantageous position.
- Never updating the contract language. If you are using standard contracts on a regular basis, such as using the same project contract as the basis for all new projects you take on, it’s dangerous to leave the contract language untouched for too long. Every year or so, you should work with your team to review and update the language, accounting for any new developments you want to include, or covering for previous mistakes and loopholes you’ve discovered.
- Rushing due diligence. If you’re negotiating a big project or partnership, it’s tempting to rush the due diligence process so you can get done as quickly as possible. However, this can lead to overlooked details, and unexpected consequences. It’s almost always better to take more time, and learn all the details, before proceeding.
- Failing to include provisions on defaults and termination. Too many entrepreneurs fail to include any details about what happens if the contract is broken on either side, or if its conditions aren’t fulfilled. Negotiating these details isn’t pretty, and it assumes that a contract breach is possible, but it’s still important to include these details just in case.
Experience and Expertise
The two greatest tools you have at your disposal in contractual drafting and negotiation are experience and expertise. Unfortunately, experience can only come in time; the more contracts you create and finalize as an entrepreneur, the more comfortable and informed you’ll be about the process. On the other hand, expertise is something you can get anytime—as long as you’re willing to pay for it. If you’re in doubt, consult an attorney, and until then, pay close attention to your dealings and don’t rush the process.