Gone are the days when you only needed a word to honor a business transaction. There is no longer any guarantee that a person will accept something that’s not on paper. Along with that, you could be taking on unnecessary risks by not implementing contracts into certain areas of your business. That being said, here is a guide for when to use a contract for your business.
The Benefits of a Contract
Contracts have many purposes, and not everything’s the same in function. Its importance can be different depending on the business or industry. No matter the written agreement, here are some of the reasons you’d want to use one:
Creates an Environment of Compliance
It’s easy for employees or partners to break agreements without a written contract. It serves as their guidelines, helping them understand their responsibilities. If they don’t follow it, then it is a breach. It will likely have information on how to approach non-compliance.
A Way to Collaborate
The contract solidifies a business partnership. It is the tie that binds together two entities in a project. It encourages negotiating so that a business and business partner agree on a contract that benefits them both.
Makes a Business Deal Efficient
The contract is a replacement for lengthy meetings and email exchanges. Once signed, the business can begin its work without any further delays.
A contract can also be a way for a business to mitigate risk. If one party breaks the agreement, the document allows them to sever ties and get out of it immediately. If this breach of contract is particularly egregious, you may be able to take them to court and sue them.
It’s also a way to avoid possible conflicts. For example, you can state in the contract that the partner cannot work with any rival for the duration of your business together.
When You Should Use A Contract: The Best Practices
As mentioned earlier, people enter into contracts for different reasons. It acts as the assurance that mitigates or removes risk altogether. There are some situations where that signed document is a must. Here are some examples:
When you are buying land or property, you’ll need a contract. In real estate, it is often called a deed. That contract secures your ownership and removes any form of dispute. It can also be beneficial for those wanting to lease or rent.
An employment contract details the responsibilities and obligations of an employee. It also shows the type of work, remuneration, and other benefits. Furthermore, it protects a business if the employee doesn’t follow its guidelines.
Lending and Borrowing
Without a contract, one could easily deny that they borrowed any money. The lender is entering into risk with this type of agreement which is why a signed document is essential. The contract details the payment terms and how much the borrower earns. It also restricts the borrower from specific actions depending on what the lender writes down.
Make Sure You’re Using Contracts When Applicable
Contracts aren’t binding until you sign them. You have the option to back out or negotiate if you don’t find the terms beneficial. After signing, it’s considered an official document that can be used in a court of law. Keeping this in mind, make sure to use that to your advantage and avoid contracts that can put you in unfavorable situations.
If you’re looking for more knowledge about contracts, you can subscribe to Wealtheo+. The service aims to shorten your path to financial success by teaching you all you need to know.