Monday, June 22, 2009

Why You Should Make a Contract in Your Business Transactions: Because Contracts Can Add Value

Over the last few days I have talked with several people who have come to me with an all-too-common problem.  They got into a business relationship or entered a transaction for services, but did not create or use a written statement of their understanding, i.e., a contract.  Now, they are feeling slighted or stuck and they need to figure out how to make the most of the existing, ambiguous, situation.

Not only can much of the emotional or financial burden of such situations be avoided by engaging in a contract, but one Stock Up (Small)can also make more money, provide and obtain better goods and services, develop integrity in the business community, and establish one’s self with stronger, sustainable, and recurring business relationships.

I often hear that businesses and service providers avoid formal written contracts because such an agreement puts them off, or puts off their potential business partners.  We have all heard stories of a simple transaction which, for some reason, involved a multi-page burdensome contracts.  But there are also many seemingly simple situations which do not involve a contract, and then go awry.  There is a happy medium.

Many of the basic reasons to put a contract together are fairly straightforward and highlighted below:

Get On the Same Page

Empty Page (Small) First, a contract allows the parties to actually “get on the same page.”  Everyone has had the experience of a misunderstanding or miscommunication in simple situations like when and where to meet for lunch.  Contracts give the parties a chance to express what they are thinking and their expectation, reducing the likelihood of confusion.  This clarification goes a long way to create a level of security and trust.  It also works to prevent persons from being tempted to wiggle out of commitments, to get something extra without compensation, or to fail to live up to their presentations.

Take a Moment to Take Stock

Second, contracts give the parties an opportunity to pause and think about their transaction so they can address the points that are important to them.  Anything worth doing should be given at least a modicum of thought.  Taking the time to think about the different aspects of a transaction keeps important issues from being assumptions that create problems later.  It creates a situation in which the parties actually bargain into a mutually beneficial situation.  In particular, a contract provides an opportunity for parties to take stock of what they have, what they are giving up, and what they are getting in return so that they can make sure that the bargain is advantageous to all involved.  And finally, part of the advantage of this process is that parties consider their relationship and establish a foundation on which the relationship can remain strong and beneficial in the future beyond the initial transaction. 


Club small Finally, contracts make enforcement easier.  The parties can easily tell if they are getting that for which they bargained.  As a result, parties do not have to expend as much time and energy keeping each other accountable.  This also helps to prevent parties from taking advantage of each other.


There are other reasons to take the time to put together a contract for business transactions, and there is much more to each of these reasons, but these are some of the basics.  By approaching contracts as opportunities to add value to one’s self and others, businesses can turn their contracts into useful tools for their activities.


  1. Hi

    The business is one of the most important things in my life ... Because of this I always look like being updated on the issue and thus become a better person and better trader

    Rose Mary F.

  2. I totally agree with you. Legal contract is very important for any business.