A New Year’s Resolution: Improve Your Contracts

With the New Year, many of us resolve to be better organized – and leaders of growing businesses are no exception. As they plan for the year ahead, clients often tell me they would like to get more organized about how they handle their contracts with clients, vendors and subcontractors.

It’s a great idea. For at least eight reasons I’ll detail below, it’s well worth the time and effort to improve your key business agreements and your contracting process.

But I have also learned that this is a great time of year to do it.

Why Now?

Imagine calling up your best client, or your most dependable vendor, on a random day in the middle of an average month, and telling her, “Hi, Mary. Listen, I know we’ve been doing business together for three years, but I’ve decided I want you to sign a new contract this week.”

The inevitable two-word reply: “What’s wrong?”

But the New Year is a natural time for new things, and new processes. Asking your clients, and your key vendors, to “re-sign” at the start of the year feels natural and unthreatening to these key populations. My clients have had good results overhauling their contracts in January, and  beginning the process with emails to their contractors that start something like this:

As we wrap up 2015 and head for a new year, I have resolved, like so many others, to be more organized!  As part of that effort, I want to make sure everyone who is a part of our team has all of their “contractor facts” in one convenient place at the start of 2016: one letter that includes all the important information about what you do for us, as well as our key policies and procedures.

The sub-text here is not threatening. We’re saying, “Dear Contractor, this is not about you or a problem I am having with you. This is about us working even better, together.”

The calendar says January is the best time to overhaul your business contracts.(if you are reading this post and it’s no longer January, I think you can also take this approach at the start of a quarter – especially July 1 – or around Labor Day, which is when the business cycle really starts over.)

Why Bother?

Of course, even more important than how you kick off the process of revising your contracts are the contract terms themselves. And there are lots of good business reasons to work with your legal counsel to create and implement a new standard contract for your clients and for your contractors.

Here are my eight tips for how and why to go about it:

1. Have an actual contract. Handshakes are great for greetings and bowl-game coin tosses. But they don’t protect you or your partners – your clients and contractors – from risk and uncertainty. This is not about trusting each other: good contracts protect you both from regulators (like state labor departments who want to classify your 1099’s as W-2’s) and third parties (who want to hold you responsible for things that weren’t your work).

You know you need an actual contract with your clients and contractors, just as you know you need to watch your weight and get more exercise. It’s a New Year. Time to do it.

2. Standardize. There is a common experience among growing businesses. An issue comes up about a client (What are their payment terms? Do they have to give us notice before they cancel an order? Can they re-sell our work product?), but before the business leader can resolve the question, she or he has to find their contract and then read and interpret it. In that instance, the most common result is that the busy leader just defers that effort. The question about how to deal with the client doesn’t get answered, and a problem keeps festering.

So resolve to get everyone actually on the same page. Create one standard set of terms for all your clients, another set of terms for all your vendors — and agree to amendments only in rare and individual instances. (And then keep track of those variations: we’ll talk about how best to do that in a later post. Or reach out to me now if you need immediate help.) Then enjoy the experience of always knowing the answers to business and contractual questions as they arise, because you are doing business the same way with everyone.

3. Create a business “cookbook.” As long as you are aiming for a new, organized set of agreements, make those agreements useful on a daily basis. I think the best business contracts give the parties the recipe for how to do business together: how often to check in; who to contact in different circumstances; how to pursue new opportunities, how to resolve disagreements, etc. Good contracts promote a growing relationship.

4. Address new issues. If Adele has released a couple of albums since the last time you reviewed your key contracts, then hello! There are probably a lot of hot issues and new, significant risks the documents don’t cover. Does your client contract talk about who has the ultimate responsibility for quality? Does your vendor contract address data security? New Year’s is your time to come up to date.

5. Address those niggling issues. If you are like most businesses, there are a handful of issues that seem to come up all the time with your clients and contractors, creating questions  and misunderstandings you have to take time to resolve. A new contract is your chance to be proactive and address those issues head on, before they become points of pain for you and those with whom you do business. Set those expectations in advance, and you’ll save yourself a lot of time and effort in 2016.

And if there is language in your current agreements that always seems to trip up the closing process — something that most of your prospective clients balk at — this is also the opportunity to work with your lawyer to find new language, and a new approach, and build it into your standard contract. Maybe you can give a little ground on that point, and shorten every negotiation going forward.

6. Shorter and sweeter, because you know better what you need. All this may make it sound like your contracts are going to have to get longer. But in my experience, the opposite is true. By sharing your experiences with your legal counsel, you should be able to whittle your contracts down to just the terms you really need, and cover only practical (and not merely theoretical) issues.

When I work with my clients to refresh their contracts, I also try to purge the legalisms and use only plain and clear language. The contract should implicitly demonstrate how straightforward, transparent and organized your business is.

7. Repeatable and scalable – focus on the process. Once the contract is spruced up, resolve also to improve your contract process. Just like the production processes in your growing business, the process of generating contracts and getting them signed should be easily repeated, and easily scalable to handle an increased volume. Here, I am a big believer in using templates and setting up an e-signature process for my clients.

8. The best reason of all: GROWTH. Having a reasonable, standard contract at the ready, and delivering it promptly and electronically, improves the image of your company. It makes you look organized and authoritative – like you have your stuff together (because you do). It also shortens the sales cycle, letting you close a deal before second thoughts creep in.

So this New Year, resolve to contract in order to grow. I’ve seen it work.

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