How to negotiate commercial contracts

Contracts are the backbone of your business relationships, providing structure and support so you can move freely - safe in the knowledge that your business is protected. But, like any safety net, contracts are not infallible. They require a great deal of care, maintenance and professional help to work at their best. We've got you covered with everything you to run your business on solid contracts.

1. Why business contracts are crucial

Contracts essentially clarify the expectations and responsibilities of everyone involved before work starts. The ultimate goal is—quite literally—to put everyone on the same page and eliminate any room for misunderstandings. Contacts not only stipulate everyone’s role in the agreement but also hold parties accountable when they don’t meet their operational or financial obligations. They span a safety net around your company’s financial health to provide recourse when things don’t go as agreed. 

 What’s more, investing in contracts signals that you mean business. It adds a professional edge that is particularly beneficial for smaller companies with an ambitious growth agenda. If you take your business seriously, chances are you take your obligations seriously too. 

2. The building blocks of great contracts

Contracts work best when every possible scenario is played out. Here’s what you need to create a solid foundation for every agreement that grows with your business and improves with every iteration. Put in the hard yards up front and take your time - remember, this is your company’s first line of defence against risk and losses. 

Here’s how legal service subscriptions help SME business owners put their legal concerns to rest:

• Drill down into the details.

Unpack every aspect of the business agreement and include detailed descriptions of each deliverable and the outcomes expected. It may feel petty or obvious but don’t leave anything up to chance. Details are easy to remove but impossible to add in hindsight. 

• Linger on payment terms

Be very clear about the payment terms and conditions that govern the contract. The importance of this cannot be overstated. Stipulate when you expect payment and what happens when deadlines are missed. If either party does not deliver, be clear on the compensation expected for any losses suffered as a result. 

• Nothing is indefinite

Specific timelines are key to protecting your interest while ensuring flexibility. Start with a shorter duration to test the waters. Contracts are easy to extend but hard to exit. Be intentional with timelines for all eventualities like termination or amendment clauses. 

• Protect your trade secrets

Never assume that confidentiality is guaranteed. Explicitly state what is confidential and ensure that your intellectual property—your competitive advantage—remains within the confines of your business agreement.

• Lean on the law

State the specific laws and regulations that govern your contract and how they apply when things go wrong. Detail - according to the law - what happens in the event of disputes and how they are resolved. 

• Work with decision-makers

Ensure that all the parties or entities involved have the capacity to enter into the contract and the authority to approve the terms. Insist on working with decision-makers within the business to achieve the desired result faster. 

Finding common ground on all terms is not always straightforward. In fact, contract negotiations can be fraught with challenges, but it’s always possible to find a way through. Here’s how to prioritise your interests without jeopardising business relationships - 

3. How to ensure fair, yet favourable contract terms

From our many years of experience supporting companies to negotiate contracts with confidence, we have seen first-hand what it takes to keep the process on track and ensure a successful outcome. Here’s our roundup of helpful tips - 

• Be prepared

In business, knowledge is always power. Study the market and trends. Chat with other business owners, review industry standards or best practices, and lean on case studies where possible. Back your key requests up with data. Prove how it works in practice and how all parties benefit. 

• Be specific

Avoid a blanket approach at all costs. One size does not fit all when it comes to contracts. Break the contract down into separate parts and move through each point methodically. Shelf points that are challenging but come back to them later. Do not sign a contract unless every point has been worked through. 

• Establish transparency

Be upfront and clear about your goals. And implore other parties to do the same. Ask questions, listen carefully, and ensure you understand exactly what is at stake.

• Define your non-negotiables

Work out which terms are crucial to protect your interests and leverage less important ones to reach an agreement. If you find yourself swaying on your non-negotiables, don’t be afraid to walk away or take a break and regroup. 

• Focus on interests

Look past the business speak and legal jargon to find each party's underlying interests. Stripped bare, these wishes are less intimidating. It’s an excellent starting point for negotiating trickier terms. 

• Seek collaboration

Look for opportunities to agree and seek solutions that accommodate both sides. Discuss provisions that accommodate changes in circumstances for both parties. Prioritise collaboration and longevity. The goal is a thriving business relationship. 

3. Your 5-point checklist to avoid contract failures

When contracts fail because either party are not meeting their obligations, business owners often face financial losses or damage to a hard-won reputation. Once you’ve negotiated your terms and written up the contract, here are five things to check before you sign on the dotted line. 

• Avoid ambiguous words

Unclear language breeds disputes. Write your contract in plain language and layman's terms, far from jargon. Stamp out any words or phrases that could be interpreted in more than one way.

• Don’t deal in trust

If it’s part of your business dealings, include it in the contract. Don’t trust that your expectations are obvious or that all commitments will be met. Put it in writing. 

• Fine-comb the details

Don’t sign a contract you haven’t read or don't understand. Scrutinise the details and ask questions. Remember, you always have a choice. 

• Regularly review contracts

Include clauses that outline procedures for modifications. Circumstances change, and contracts should, too. Set calendar reminders to review and update contracts so they always reflect your business situation. 

• Consult a contract expert

Legal experts can help you identify risks, unpack problematic clauses, and ensure compliance with the most recent laws. It's essential to ensure that your contracts are endorsed by a seasoned professional who knows your industry.