In today’s rushed world where we blindly accept contracts for iTunes and other random apps, it’s easy to just sign off on a contract, even when it relates to your business. But contracts are made to protect the one writing it, not the one signing it. There is a litany of problematic issues that can arise if you rush the contract process, whether you’re buying new point-of-sale (POS) hardware, a payroll management system or a new ecommerce platform.
Here are a few key things to look out for as you review various technology and service provider contracts:
Auto-renew
Most contracts will have automatic renewal set as the default, and typically, the renewal comes at an inflated price. That means you could easily end up with a renewed 60-month contract because you said nothing up front. Request that this language be deleted from the agreement. If that’s not an option, formally request no auto-renewal per the contract terms once you are under contract.
Guarantee of Services
Many contracts have little to no guarantee of the service or items provided per the contract. You might infer extended service or parts coverage as part of the deal, but it isn’t real if it isn’t in ink. Make sure that every detail of what you expect is included in the contract; if it isn’t, determine the price of what you won’t have in the agreement before you sign up.
Contract Length
Some contracts go for 24, 36 or even 60 months at a time. That is a long time in the business world, especially when you’re paying your hard-earned money for a subpar solution or service. If you aren’t willing to commit to, say, five years, say that now and make it a livable deal. And if they ask why, reply with, “If your product is all that you claim it to be, the renewal will be no issue at all, but on my terms.”
Leased Rentals
Say you have a POS system that you’ve been paying toward for five years. You’ve spent more than 3X what it’s worth because you could only afford monthly payments. After five years, you find out that you don’t actually own that system and you’ll need to keep paying a monthly fee if you want to keep using it. At this point you’ll realize that you never had a contract to own that product: you had a lease without a buyout option. Make sure you know what you’re agreeing to before you sign.
Remember the Sales Angle
Your internet service provider, your surveillance camera company, equipment providers, etc., are all going to give you contracts. The people selling these products and services need to hit their sales numbers. Even if the contract isn’t completely in their company’s favor, that won’t affect their sales numbers and their bonus. Know this when you negotiate: you have the upper hand. Any salesperson worth their weight in salt will want to work to get you a fair deal. The only thing in your way of a great deal is your willingness to speak up.
Lawyer Up
Have you ever heard the saying, “There’s nothing more expensive than cheap legal counsel”? Well, there actually is something more expensive, and that’s no legal counsel. You need to know what’s covered and what isn’t covered in any contract. It would be best if you also had a clear exit strategy for every contract you sign.
I’ve had simple phone service contracts where I added a new line, signed a new agreement and in doing so unwittingly initiated a new five-year deal. I’ve been burned enough times to know now that it’s worth having a lawyer on hand to look over every contract. You don’t have to spend a crazy amount of money — find a lawyer willing to review a lot of small contracts for you at a fair cost, and it will be the best investment that you make.
Let the lawyer check contracts for anomalies so you can ask the right questions and ensure you aren’t taken advantage of. It’s more cost-efficient if you develop a solid relationship with a lawyer who does this for a few hundred dollars than it is to go into an agreement where you end up on the hook for years on end. Even if you hire a lawyer for just one contract, you can then make sure any future agreement mimics the one they reviewed. It will be worth the minimal investment.
Paper Trail
Any new contract you sign will most likely go through an online portal like DocuSign. This seems like a great concept to make these forms easier but be aware that the contract has a 24-hour expiration term. This practice creates a false time constraint: it seems like you need to sign so they can get to work right away or so the “deal” doesn’t expire. Never accept a false time constraint and always take the time you need to review your contracts. Any deal available last Tuesday will be available next Tuesday if a sales loss is on the line.
Ensure all your signed contracts are scanned and saved digitally, with a backup in a filing cabinet on-premises. If you’re ever curious whether you’re still under contract, ask to see the contract from the vendor. If they can’t provide the contract to you, you’re de facto released of that obligation.
And if you’re under a contract that you want to get out of, a lawyer is your best option. The threat of legal action alone might be enough for the vendor to relent. At the end of the day, they don’t want to deal with an unhappy client or worse, costly litigation.
If you are of the school that believes “my word is my bond, and I do business with people who are the same as me,” I get it; I want to be like that, too. The problem is that the person whose hand you shake might not be with the company in six months. At that point, it will all come down to the contract to determine the full nature of your agreement. Always get everything in writing to ensure you, your assets and your business are protected.
Mike Bausch is the owner of Andolini’s Pizzeria in Tulsa, Oklahoma. He writes a regular business column for Pizza Today, from which this article has been adapted.
