As a lawyer you won’t be surprised to read that I agree with the old advert tagline ‘it’s never too early to call your solicitor’ but it’s entirely understandable that new start-up businesses and those that need to keep a tight control of budgets, don’t often consider legal advice high up on their priority list. For these companies, the drive is to win business, build brand, reputation and most importantly bank balances, all as cost efficiently as possible. However, companies should be aware that whilst contracts can do all of those things, those same contracts can also result in businesses picking up significant levels of risk. Any contract dispute, even if it is only minor, can ruin brands and reputations, result in non-payment by the client and expose the contract holder to client losses which far outweigh the original expected benefits of the contract. In the worst-case scenario, a poor contract can sink a business.
Contracts are used to regulate all aspects of a business, including relationships with suppliers and clients alike and so should always be in writing and entered into carefully. A business providing goods or services built on hard earned and valuable know how or intellectual property, will want to ensure the continued ability to commercially exploit those assets. These businesses will want to avoid giving away control or ownership of that know how and IP unwittingly or as a result of client pressure. Client protection and comfort can be given in other ways in a well written contract. Businesses who work to meet a flexible and fluid client schedule, also need to ensure that this flexibility is not used to support a client’s claim for delay. Good staff are a valuable asset in any business and businesses should ensure their contracts disincentive their counterparts from poaching their staff members. These are only a sample of risks that can be overlooked.
All organisations, whether new or lean, should remember, whether considering contracts with excellent performance or ones where performance does not go as planned, that what’s written in the contract is all they have to rely on when needed, to either promote or protect their business. This is where your reward lies and where you risk should be limited. Taking legal advice at the outset, from experienced professionals, who know your industry, thus ensuring you only sign contracts that do protect and promote your business in the long term, should be seen as a key part of your strategy, just like choosing employees.
A contract should always be valuable and viewed as a business asset, but one that’s entered into without legal advice is unlikely to be either. One key stage in any business acquisition is the review of that business’ contract portfolio, to assess not only any value they hold but also the risks they contain, which could impact the overall value of the business. Any organisation, who aims to one day be attractive to a buyer should know that their contract store is critical. It would be just as critical as their client list, supply chain arrangements, products, services or employees. If it hasn’t been given the same care and attention as those other assets it could be the element that makes their business less desirable or even completely unattractive as an acquisition target.
Finding out how good or otherwise your contract is, only after it is signed or worse, after things deviate from plan, is a risk that should be and can be avoided by any business looking for longevity and success. It is never too early to call a good commercial solicitor but I don’t think anyone can disagree that it can definitely be too late when trying to minimise taking on unnecessary risks.
