What Small Businesses Need to Know About Contracts and How to Manage Them
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Contracts are the backbone of any business, laying the foundation for beneficial partnerships or collaborations.
These crucial documents outline the terms and conditions of agreements to protect both parties involved. For small businesses, managing contracts is especially vital for ensuring business success. Around 18% of small businesses fail within a year of opening, half fail within five years, and 65% after ten years, leaving your company in a vulnerable spot without the proper measures. Poor contract management can contribute to this by increasing your risk of legal troubles, possible financial losses, and reputational damages.
To maintain trust between clients, vendors, and customers, learning about contracts and how to manage them for your company is essential. So with that in mind, here's what small businesses need to know about contracts and how to manage them:
The Fundamentals of Contracts
Businesses create contracts to establish legally binding agreements, and numerous kinds of contracts can be developed. According to a write-up from Chron, leases, sales contracts, employment contracts, and general business contracts are the typical categories of business contracts. Lease agreements specify the terms of renting property or equipment. Sales contracts that detail the terms of a sale, including products or services, price, payment terms, and delivery. Employment contracts define terms of employment, including job duties, compensation, benefits, and termination conditions. General business contracts can encompass various business dealings, such as collaborations or franchise agreements.
Regardless of contract type, managing them requires careful management to ensure all parties are fulfilling their terms. The general stages of contract management typically include creation, collaboration, signing, tracking, and renewal. Creating the contract involves setting up the initial terms and conditions and collecting pertinent documents. Negotiating these terms comes during the collaboration stage. Signing the contract executes the terms and signifies that the involved parties are entering into the agreement and will follow the conditions. Tracking the contract can ensure deliverables are being met and determine if they are effective. Renewal extends the partnership and the agreement and offers opportunities for contract improvement.
How Small Businesses Can Manage Contracts
Poor contract management can put your small business in a tough situation. Missed renewals can lead to revenue or client loss. Inaccurate or outdated data can lead to overcharging, underpayment, and even legal or regulatory liabilities. Disputes and miscommunications due to vague language or lack of crucial terms can affect reputation. Manual contract management processes can help, but may still be inaccurate and time-consuming. Investing in contract management technology can boost your efforts and ensure accuracy and timeliness.
Contract renewal management solutions from SOFTRAX showcase how automation can play a vital role in contract management. It can automatically generate lists of all contracts and subscriptions up for renewal and configurable renewal rules by date, product, location, or customer. Even the most complex contracts and processes are delivered on time and for the appropriate revenue amount. Automating this process can allow your business to focus on core business activities rather than spending time and effort on contracts.
If you need help with the creation and negotiation process, AI-powered platforms like DraftWise or Jasper can streamline these procedures and lead to high-quality contracts by empowering professionals with the firm's collective institutional knowledge and data. The legal industry is leveraging this software to develop detailed and accurate contracts for stronger agreements.
Using contract management technology may seem challenging for small businesses, but it can be a crucial investment to ensure business success. As emphasized in the “10 Keys To Ensure Business Financial Health” post, utilizing technology and innovations can help streamline operations, enhance customer experiences, and open new revenue channels. With the right tools, contract management can build stronger partnerships and keep your small business running smoothly.
