Having the proper documentation can prevent hassles in the long run
You might dream of entrepreneurship, but long before you hang your shingle, there is one thing you need to know like the back of your hand: contracts. Businesses are built on the backs of contracts, so the more familiar you are with the different types you will need, the better. To that end, here are the top 9 most common contracts SMBs use and how you should use them to grow your business.
Business contracts, as the name implies, are the typical agreement used in business. Throughout your tenure as an entrepreneur, you will draft thousands of business contracts, which you will use to partner with suppliers, manufacturers, vendors and more. The goal of the business contract is to be customizable to fit whatever agreement you need it to. Because you will likely have so many business contracts (and other contracts) in effect at once, you should consider investing in contract management software from Exari, which will monitor the terms of your agreements, track timelines and ensure compliance.
Unlike business contracts, service contracts are specifically for obtaining or providing services. You will use service contracts to hire shipping companies, marketing agencies, third-party accountants, and HR providers. Like business contracts, service contracts will be in great abundance throughout your business’s life, so you should become accustomed to drafting them — and managing them — as soon as possible.
When a guest to your home is injured on your property, you are personally liable. Similarly, when someone is injured (or something is damaged) on your business’s property or performing an activity required or sponsored by your business, your business is liable. A release of liability is a form signed by employees, clients, visitors, and other people on premises to ensure your company won’t get sued if something unexpected and bad happens. It won’t protect you in all cases, but it’s a good contract to have on hand should there be opportunities for danger.
Depending on your industry, equipment leases could be exceedingly common contracts used by your business. It’s typical for newer and smaller businesses to lease rather than purchase large equipment. You will also rely on equipment leases often if your company is in the business of leasing out its owned equipment to personal or professional clients. Finally, you can use an equipment lease to lease your equipment, like your personal car, for business use.
Perhaps the best-known contract used in business, employment agreements are used to hire workers. These contracts should specify the rights, responsibilities and obligations of all employees, salaried, full-time and part-time. You will need to renew these agreements whenever you award employees with a promotion or raise. It is also important that you make relevant employment agreements available to employees, so they can access the terms as necessary.
Independent Contractor Agreements
As the gig economy grows, it is becoming more common for businesses to hire a number of independent contractors, or freelancers, to complete short-term projects. Like employment agreements, contracts used to hire independent contractors must be specific in the rights, responsibilities, and obligations of both parties, and they should include milestones and timelines to ensure both parties are on the same page.
While they might sound exclusive and uncommon, non-disclosure agreements — or NDAs, as they are famously known — are much more typical in business than you might expect. Most businesses have some sort of confidential or proprietary information that owners don’t want to seep out into public knowledge. By having employees, freelancers, investors, and even customers sign NDAs, you can avoid a devastating information leak.
The less-famous cousin of the NDA, the non-compete agreement prevents former employees or partners from going into business for themselves. Because they’ll have crucial information about your business structure and strategy, employees have the perfect opportunity to become more successful competitors in your sector. Typically, non-compete agreements are baked into employment contracts, but if you forget to add those important clauses, you can draft an NCA to fill in the gaps.
In addition to the employment agreement, you should have workers read and agree to an employee handbook. This will go more in-depth into the dos and don’ts of employee conduct, to prevent embarrassing or illegal behavior. Handbooks can be specific in outlining an employee’s hours, dress code, interactions with coworkers and clients, and more. By keeping this separate from the employee agreement, you can reduce the paperwork required to award raises and promotions.
Businesses and contracts go hand-in-hand, and they have done so for millennia. By knowing more about the contracts your business will require, you’ll have a leg up on your competition and enjoy greater success in the long run.
Written by: Tiffani Wroe, BOSS Contributor