Contract Drafting Best Practices for Your Small Business

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Contracts can be daunting for small business leaders but you can rely on contract drafting best practices. With a bit of planning and the right tools, you can get what you need and protect your company from breach.

Contract Drafting Process

The first step in the drafting process is to get clarity on who the parties are and what they each want.

It seems basic but the key demands of the contract are often overlooked [PDF]. Sometimes, it’s only in the redlining process that one or more parties realize the contract doesn’t get them what they need!

When choosing your words, keep it simple. You may think it’s a good idea to use legally loaded language but it rarely is, especially if you don’t know what it means. Small businesses frequently get into trouble when they “borrow” clauses from another business’s contract without examining them.

Each clause should do one thing and only one thing. When you find yourself tempted to introduce a second deliverable or description, split them.

Check for ambiguity and vagueness. A lack of specificity in a contract is a big red flag. Look for places you might have used a name or term to describe two different things – two products, perhaps. Differentiate them each time they are mentioned. Likewise, make sure you’re not referring to a single thing by two different names. Contracts are not the place to show off your excellent grasp of synonyms.

Reading over the whole contract, look for larger conflicts. Does one part of it contradict another?

Finally, get another pair of eyes on it. Someone looking at it fresh might see things you have missed in the weeds.

Small Business Contract Drafting Considerations

In our experience with small business leaders, there are some specific pitfalls to watch out for.

Many small business contracts have multiple stakeholders. For example, if your business provides a service like event management, you will contract with the organization running the event but there may also be an underwriter or production partner involved in the contract. Multiple parties can exponentially complicate a contract since you’re building a three-way web of responsibilities.

Supply lines work differently for large and small companies. A large company moving hundreds of thousands of units of a product might reasonably be able to promise delivery because their supplier would walk over broken glass to keep their business. Small businesses rarely have that kind of luck (or assurance). The COVID-19 pandemic interrupted supply lines worldwide. Talk to your suppliers before you talk a big game in your contracts and consider adding some get-out clauses in case you can’t get what you need quickly.

Finally, consider the cost in time and money of rewriting a contract that wasn’t drafted right the first time. As with most things, contracts are worth getting right the first time. The review and redlining phase is not the time to be still trying to figure out what each party is delivering, how, and how much they will be paid for it. If you can draft a contract that’s nearly ready on the first try, your company will save time and heartache – and your partners will love you for it.

Accelerate Your Contract Drafting Process

Your company needs the right tools to support your contract drafting. A contract lifecycle management platform like Anapact will help you streamline your process and ward against the risk of breach. The lifecycle, developed by experts after decades of analysis, is a one-way process that is designed to efficiently produce contracts with fewer opportunities for mistakes.

Clauses are the machinery of your contracts. Using a clause library will support you to use only clauses that have been approved by your legal team.

And once the contract is drafted, a robust set of review and redlining tools will expedite the rest of the contracting process.

The contract drafting process doesn’t have to be painful. With the right tools, you can get clarity, draft a fair contract, and secure a signature in record time. Get a demo today.

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- About the Author

Louis Balla
Louis Balla
Louis is the Co-Founder of Anapact and partner at Nuage, a top rated ERP consulting firm based in Venice Beach, California.