Common Contract Mistakes Entrepreneurs Make

signing contracts

Being your own boss has lots of appeal, of course. But it also means you’re responsible for drumming up your own projects and handling the jargon-filled contracts for services rendered.

“People often don’t fully read the contract or completely know its terms before they sign it,” says negotiation and contracts expert Eldonna Lewis Fernandez, author of Think Like a Negotiator. Which means you risk fulfilling terms that you aren’t happy with — or, worse, that cost you more time and money than you’d anticipated.

It’s key to clearly understand the terms before pen hits paper. Here’s how to sidestep the most common contract mistakes entrepreneurs make.

Sign Here

Sign Here

Being your own boss has lots of appeal, of course. But it also means you’re responsible for drumming up your own projects and handling the jargon-filled contracts for services rendered.

“People often don’t fully read the contract or completely know its terms before they sign it,” says negotiation and contracts expert Eldonna Lewis Fernandez, author of Think Like a Negotiator. Which means you risk fulfilling terms that you aren’t happy with — or, worse, that cost you more time and money than you’d anticipated.

It’s key to clearly understand the terms before pen hits paper. Here’s how to sidestep the most common contract mistakes entrepreneurs make.

Do Some Digging

Do Some Digging

Fernandez recommends doing a bit of research on the people you’re going into business with, their company, their past performance, and their reputation before you sign on the dotted line. “Verifying the facts is a way to protect yourself from headaches once the contract is signed,” says Fernandez.

Google is the obvious place to start. But don’t stop there. Reach out to colleagues who are familiar with your potential client. They may have information about their business practices you should know before agreeing to the deal.

Don’t Start Without the Contract

Don’t Start Without the Contract

Don’t start working without a contract, says the U.S. Small Business Administration (SBA). They require two components: both sides have to agree on the obligations and expectations and both sides have to agree as to what of value (money, services, or goods) will be exchanged. Want to know exactly what your contract should include? Peruse the SBA’s checklist here.

This item is legal proof that both sides have agreed on the transaction. Then make sure you have a copy signed by both sides to prove the terms are agreed upon.

Learn the Jargon or Get Advice

Learn the Jargon or Get Advice

The jargon in the contract may not necessarily mean what you think it means unless you look it up in the context of intellectual property law. For example, according to the Graphic Artists Guild — a professional organization aimed to protect the rights of its members, including independent illustrators, designers, Web programmers, and developers — phrases like “work-made-for-hire” carry specific implications.

Signing off on this means you’re okay with the fact that the commissioning party will own the copyright, taking away not only your rights to how your work is used but even its authorship. The guild’s glossary of contractual terms can be found here.

“I often see that people don’t seek outside advice from experts on things they don’t understand in the contract,” says Fernandez. It’s always good to get a second set of eyes, or even a third, to look at the terms before you sign; others can notice missing elements that you might easily overlook.

Ask Questions

Ask Questions

On the flip side, it’s often what’s not stated in the contract that can cause you trouble down the road. “You need to ask questions to get all the answers up front,” says Fernandez. Fernandez cautions that details not specifically outlined in the contract can leave you stuck with an unsatisfactory outcome or expenses you hadn’t considered when you agreed to a rate.

Examples of clauses that may be left out of the contract that should be included to protect you:

  • When is payment due?
  • What’s the cancellation or kill fee?
  • Who pays for reimbursements for expenses accrued (from necessary phone calls to travel costs) to complete the project?

Have these details in print so both parties are on the same page from the get-go.

Set Clear Guidelines

Set Clear Guidelines

“One of the biggest issues freelancers and entrepreneurs run into when creating contracts is not creating clear guidelines that express how revisions will be handled on work once it is completed,” says career consultant Dana Leavy-Detrick, owner of Brooklyn Resume Studio. “Because of this, designers, writers, or other project-based consultants often get roped into lengthy and expensive add-ons and revisions that weren’t previously budgeted for. Suddenly, you’re in the negative profit for time spent on a client project that has run over.”

Leavy-Detrick recommends that you set clear guidelines up front by creating a clause in the contract that specifies a set number of included revisions, modifications, or add-ons, and/or a fee or hourly rate for any additional work that falls outside the original scope.

“Many entrepreneurs price their work based on a project rate, or an estimated number of hours, which is typically based upon a time frame in which they can personally complete the work,” says Leavy-Detrick. Write it out to ensure you’re not shortchanged.

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