BUSINESS CONTRACT: HOW TO AVOID THE BIG MISTAKES THAT COSTS STARTUPS THEIR BUSINESSES

BUSINESS CONTRACT: No startup business has everything covered and running. Business relationships between customers, partners, employees, and other businesses are essential to business success and growth. Most of these relationships must be formalized with contracts to avoid uncertainty, risks and litigations.

Certainly, this practice where everything has to be formalized; legally binding both parties in business contracts, is quite difficult to hold down because of perceived legal costs and ‘it’s a small business’ deal notion. Every penny, no matter it’s value is wealth to your business. Hence, the importance of every contract to safeguard your returns and success.

Most startups regard these formalities which in turns protect their interests as quite a ‘slow down’ to getting the contract or jobs to feed their pockets fats. The temptation to go by the traditional handshakes and verbal contractual agreements are always higher than the insistence on a written agreement- contract.

Documentations are important to your business. Every information regarding your business will be needed as your business takes growth leap for a proper evaluation.
Services rendered, jobs or contracts, as little as they may come in, serves as the major source of cash flow and must be in written agreements for future references. (Depending on the kind of products or services provided, written agreements may vary)

Startup owners have worked themselves off for no cash over past decades. They have been reaped off because they had absolutely no records of work or services provided, sales of products or delivery and often given excuses or forgotten.
In most cases, startups go all out to exceed expectations for contract deals from bigger companies and end up with no cents in their accounts. Why ?
Because some startups are just ignorant of these formalities. Others are because of relationships between the ‘contractor’ or client. In some situations, it’s just sheer avoidance of losing the contract on insistence of a proper written agreement.
The inefficient legal systems of a country can also be a reason why startup business owners do not work with binding contracts. But, it isn’t a good reason for a business owner not to protect its own interests for success. Losing a contract or client should not incite fear to not do the right thing. Business losses are ‘almost’ inevitable.

Startup businesses are risks. Experts says, it’s another form of gambling. Regardless what you invest into it, chances of high value returns are not always guaranteed. If you are looking at a high rate of returns and survival in a populated startup industry, formalizing any form of business activities should be a priority. Many startups, would have survived today and listed as billion dollar companies, if they had not worked for ‘free’ without protecting your interests.
Startups are drowning in debts, not because they are not running viable businesses, lack best business ideas, or not providing excellent products or services but because they failed to protect their returns very less as compared to how hard they worked day and night in fulfilling clients or customers obligations. They end up toiling for no cash. They chase their monies around from clients until they cease to exist as businesses – fail.

The excuses of lack of legal guardians or a lawyer due to excessively high fees are not always true. Some business law firms have moderate charges for small business owners as well as arrangements to benefit both parties. Regardless the size of any business, legal services is a prerequisite. Do not accept any contract because you want to survive in the marketplace and expect everything would go well.
For instance, some big companies would contract startups to provide certain services or products and cancel the deals or go silent because startup owners can not drag any existence of such agreement between them. Survival is necessary for startups after running for couple of years. To grow significantly and accessing some legal assistance is also crucial in every stages of their business.
These are few questions startup owners should ask themselves when they start to anticipate business growth and pursue contracts from the big companies or any other means of cash flow.
Who provides the service contract? What are the clauses in the contract? Would it benefit my business? When the contract is cancelled, is my business guaranteed any form of compensation? Do I need a lawyer to bid a contract from the big companies on behalf ? What are the risks? What to do when getting my money from client fails or prove difficult? And What money recovery strategies should I deploy through contracts deals?
There are a lot of things to blame as to why most startups go bankrupt or shut down due to improper documentations and legal contracts. But most of it comes down to this: bad contract, no contract and no legal services.
Here are 7 Steps To Avoid The Big Mistakes that can cost you your business

1. PROPOSE OR INSIST ON A CONTRACT
As a startup, you may have failed to do this when a company approached you for a service of product, or even when you bid for one. When the communication is clear about what is to be done, when to , outcomes and how much is to be paid, the first thing to ask for is a written contract agreement. This secures your interest and the contract you are being offered. Don’t be shy or timid to ask for a written agreement or propose one if there is none. This does not in anyway present you as a ‘show off’, it does not delay getting the deal either. It only proves your competency and business intelligence.
If there is no contract, there is no prove of work.
2. KNOW/ LEARN ABOUT YOUR CLIENT
Before you commence work on any contract, learn about the client (business, individual etc). No information is too small to help meet expectations. There are some startup owners, who do not bother to dig a little about who their clients are.
A little information about who they are, what they do, who they do them for, etc are questions you need to ask about clients business and services requested in order to tailor work success towards them. If it has to be done, it must be done well. A lazy work will not guarantee a call back for more contracts or build a business relationship. Be sure of who you are dealing with.
3. DEMAND DOWN PAYMENT
Insisting on a contract is one thing and securing it is another. Almost every startup has been a victim of working without a down payment and not receiving either full payment at close of a contract for a service or product provided. It is always safe to demand a 30% of total charged fees before you commence any work. Do not be sweet talked into waiting till work is completed. If every contract you accept denies you of a down payment before the start of actual work, then know you will be out of business faster than you started. Do not be intimated to demand it. Note, it is just appropriate and safest business practice.
4. INCLUDE “KILL FEE” COMPENSATION IN YOUR CONTRACTS
There are raining and dry days in business. Anything can happen. Losses must always be expected but avoided. There are instances, when companies would ask for proposal prior to contract. Proposals take a lot of efforts and inputs. Imagine, if five companies offers your startup a contract, and asks for proposals and at the end of the day, they are not impressed with any or for other reasons cancels the contract? Big loss!

That would have been hours of money and labor wasted for no gain. Work smart, not just hard. Kill fees or compensation are very important to your business growth. Some of these prior proposals most often are referred to by clients for their use when contracts are cancelled. Make sure each are worth the time, the little expenses and labor.
Don’t go empty handed at the end of a cancelled contract.
5. EMPLOY A LAWYER
A lawyer is a business’s asset. They protect your interest for a fee and it is worth it. Do not start your business without first consulting a lawyer or employing a legal service. Contract agreements have many hidden clauses which you may not easily understand or notice. It is the duty of a lawyer to advice you on the best agreements that will benefit your business. Do not create your own agreements from the Internet, if you expect to grab some good cash from the big businesses.
6. SAY NO WHEN YOU HAVE TO
This is the hardest part; saying No. When you run a small business, saying no is mostly out of the game when cash is hard to find. Some times, it is not always the cash. External business relationships can also influence decisions not in your own favor. Running a business goes with guts, get some. Say no when the contract isn’t worth the take. Say no, when your interests are not covered.
7. EVALUATE THE CONTRACT OUTCOME
Not all startups are ignorant about running a business. But, some circumstances can make some startups appear so. It is a happy moment for every small business or startup to receive new contracts. Do not let the joy elude you of benefit it would give your business at the end of it all. Evaluating contracts before accepting them is one of the best business decisions you must make.
The contract is big and the returns is attractive; but it’s not enough to accept a contract. First answer these questions; Does the contract fit into your business values? Will it impact growth? Do you have the capacity to execute it? Does it require extra financial input from you?
At the end of the day, the contract should benefit your business as well. Profits and losses are part of business growth but profitability is what keeps you in business.

 

 


“STARTUP LEGAL PACKAGE”
NEED A STARTUP OR SMALL BUSINESS LEGAL SERVICES? Commec Ghana Ltd, provides a budget for every startup “Legal Package” for all your contracts and business’ legal needs. This is provided in partnership with reputable company law firms. An exclusive legal package you can trust. For enquiries and Partnership: contact Commec Ghana Ltd via commecghana@gmail.com

Advertisements

Author: STARTUPRENEURS

The Startupreneurs is an exclusive startup and small business subsidiary of Commec Ghana Ltd - A Business Development Company. All articles are originally written and owned by the Startupreneurs. Want to start a business, or already in business? Find the inspiration with us, access membership only deals, business packages and discover the enormous supports to help you grow and sustain your business. We are your best solution !

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s