Contract Mistake: No Early Termination Rights
Here's a common contract mistakes to avoid:
When you sign a service contract, never agree to keep paying fees no matter what happens, with no ability to cancel. If the service is bad, you’ll have no leverage.
That was the kind of contract my client Michael signed with his accounting firm. The firm was supposed to keep his books and pay his suppliers for him.
Unfortunately, they did a terrible job. They made several huge mistakes, failing to pay some strategic suppliers on time, which cost him those important relationships and business losses over $25,000.
This contract had some pretty terrible provisions. One of them was that the agreement automatically renewed every 2 years and he could only cancel it by giving written notice 30 days before the end of each 2 year term. If he tried to cancel before then, regardless of the reason, he’d owe the firm the fees for the remainder of the term.
The accounting firm made all those errors within the first 6 months of the contract.
He tried to cancel the contract, but they billed him for $53,000, to cover the fees for the rest of the term. Even worse, the firm had control over his bank account and all of his accounting records, which they refused to release until the bill was paid.
A lawsuit would cost him even more money. On top of that, he had to engage a new accounting firm and pay to recreate all the accounting information.
This was a very expensive mistake. Just Don't Do It.