Contract Mistakes: Do You Feel Lucky?
My client Michael is a successful and very confident businessman. Usually. A few months ago, he called me about a breach of contract situation with his accounting firm. He was in a panic.
As I read the contract, I began to understand why. So I asked, gently. “Did you read the contract?” He said “No.” Then I asked him, “I’m just curious, why didn’t you read the contract?” He said, “They told me it was standard. Plus, I was in a hurry.”
Unfortunately, business owners often put their companies in jeopardy when they rush to sign contracts. They don’t read them, or they don’t understand them, and they’re not prepared for the consequences.
It takes just a few seconds to sign your name. But the consequences of signing a bad contract could be huge.
Sometimes they get lucky, like my client Kathy who got an offer to sell her business for a million dollars after less than two years in business.
When she created her company, she found an operating agreement online. She tweaked it herself by adding her best friend as a “founding partner” because she wanted to give her friend an important-sounding role in her company, even though the friend only worked for her as a salaried employee.
Now that Kathy was going to sell her company for a million, suddenly her friend would be entitled to 50%.
Luckily for Kathy, they were still best friends, and her friend agreed to release her claim. But if that relationship had soured in the meantime (which often happens when friends work together), her friend would have a valid claim to half a million dollars.
But, luck is not always on our side. And no amount of clever lawyering can get you out of some bad contracts. The best way to avoid a bad deal is not getting into one in the first place.
I’ll share with you a few mistakes to avoid in my next posts. Stay tuned.