What is a business contract?

In this video Ryan from Hybrid Legal gives a briefing on business contracts including what they are, the different types and why they’re so important.

So a business contract is a legally binding agreement in place between certain parties, which sets out the relationship, the terms and conditions, if you will. There are lots of different types of business contracts, but in their simplest form, think about contracts that you issue out of your business, whether that’s employment contracts or your terms of business and also the contracts that come into your business so various different supplier contracts that you’ll be reviewing and signing off.

Think of it in terms of incoming contracts and outgoing contracts. Business contracts are important because they’re usually the start of a relationship, so it’s a great opportunity to manage expectations from the start to present your brand and really help the other parties understand what to expect during their time with you. And hopefully that’s going to be for a long time.

Contracts help to minimise risk in the event there is a problem.

You can always go back to how the contract started and what was agreed when that relationship began. And that can often unpick some disputes quite quickly because the aim of the game really is not to go to court. You want to have a decent contract that’s nice and clear, manages expectations and keeps you out of the court rooms.

And also, when it comes to future exits, contracts are really important from the buyer’s perspective as well. And you often hear businesses say “we’ve just won the contract” so most good deals start with the contract and finish with the contract.

Examples of when business contracts go wrong

Imagine that you’ve got a nice printing facility in your office, and you’re using a company to supply that and to give you all of the consumables. That was all fine until the pandemic kicks in. You started working remotely and you no longer have a need for that printer. You contact your supplier and you say to them look really sorry, but because of the pandemic, we no longer have a need for that lovely printer unit that you’ve supplied us. Can you let me know how we can cancel the contract.

Just imagine being told by that supplier that you can cancel the contract, but only if you pay the remainder of the term of that contract? And that amount is going to be £10,000, for example, based on how much you would have been spending if you kept into that hideously long term contract that was buried in the small print. You had no idea it was in there.

Another good example is quite an old case now that involved Jet2 Airlines and Blackpool Airport. I’d recommend just having a look at that online and reading into how Blackpool Airport messed up with the use of the words best endeavours. It really cost them. It’s an interesting case and the lesson there is just be careful around the wording that you use in your contracts because it can cost you dearly if you’re quite clumsy with it.

How does it feel to have all of your contracts sorted?

Hopefully relieved so you can then focus on what you’re really good at rather than going through what you probably think are really boring contracts, but what we think is really important and really interesting as well. But ultimately, you’re going to feel like you’ve got the relationship clearly documented with your clients. You’ve mitigated your risk. You know that you’re managing expectations, you know that the chances of being paid late or having scope creep where you’re having to do more than what you bargained for or where you might find yourself in a dispute with the client. All of that is mitigated.

And the same can be said when it comes to staff contracts as well employment contracts. Knowing that you’re up to date and you’ve got all of that taken care of properly is a big weight off your shoulders as far as the risk in your business goes. And it’s a great thing as well if you’re thinking of selling your business one day.

What’s important if someone is drafting your contracts?

So I’d make sure that they really understand your business and they’re taking the time to learn more about who you are and how you’re dealing with your clients, so knowing what the audience is for these particular contracts is key. And the industry as well, and having a good understanding of that.

The people doing the drafting also need to be very clear with you on the process, so understanding how they’re going to work with you from the initial briefing through to the final draft, how their fees will cover that and how the fees are going to be charged and also making sure that they’re there to help you implement the contracts as well.

Some firms will simply send you the word document and leave you to get on with it, whereas others will really help you understand how you can implement a new process in your business, to make it nice and easy for you to implement those contracts moving forwards.

If you’d like to learn more, drop us an email at hy@hybridlegal.co.uk or give us a call on 0333 014 4568. Or alternatively, if you’d like to speak to me, just connect with me on Linkedin.

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