8 COMMON BUSINESS MISTAKES — OR HOW TO AVOID TROUBLE
1 — GET THE DEAL IN WRITING.
It is perhaps the oldest and most often stated rule in business: “get it in writing.” And yet, a surprising number of businesses move forward with a business deal or operate their business without any type of a written agreement. The rationale is that no time exists to stop and put words down on paper. Busy owners of a business might feel that a special opportunity will be lost if they do not move quickly enough. Thus, they rush into a business deal without fully examining all of its ramifications. If something is worth doing, it is worth doing well. There is a value to taking the time to put an agreement in writing, for in doing so, one learns if the others involved are operating under the same or different facts, perceptions or conceptions. If differences are discovered, addressing them up front can avoid future headaches and problems — and, hopefully, even a lawsuit.
2 — DON’T RELY ON ORAL REPRESENTATIONS.
If a written agreement or documents exist, then the next step is to make sure that any oral portions are included in the agreement. Do not rely upon statements that some parts of the written agreement may be ignored as they are “never” enforced. Nor should you rely upon any “under the table” side agreements. In the event of a dispute, a court will look to the actual written agreement. Some provisions in the law may even prevent the court from considering any oral representations or terms that are not included in the written agreement. So if an oral term is presented to you — one on which you are relying — then be sure that it is included in the written document.
3 — FULLY READ AND UNDERSTAND EVERY DOCUMENT BEFORE YOU SIGN THEM.
Just about every business deal justifies having a written agreement. If one is prepared, then it is important that you understand exactly all of its terms. Do not rely upon representations that they contain the “standard” or “usual” terms. Make sure you obtain — and keep — copies of all related documents, especially anything that you have signed. In a business deal, there is no “cooling off” period where you can cancel the deal. So make sure that you have the deal you want before you sign and that you receive an exact copy of the contract before you sign it. If at all possible, take it home and review it thoroughly before you sign it. Even better would be to have it reviewed by your attorney with all of the consequences of the deal fully explained. Read every part of the agreement because it is not possible to predict what portions might result in a future dispute. Make sure that you keep copies of the agreement and all related documents for at least as long as the length of the agreement, and for a few years more, depending upon the type of agreement.
4 — CONFIRM ANY CHANGES TO THE ORIGINAL AGREEMENT IN WRITING.
Once an agreement is reached and put into writing, it is important to stay on top of the situation by continuing to document any changes or modifications in the agreement. A good example is construction agreements where changes will occur for any number of reasons. To protect both sides, it is normally required that there be a written change order that accurately reflects the change agreed upon by the contractor and owner. This practice is not limited to only construction agreements, though. In business deals, the circumstances under which the original agreement was made might change — sometimes even dramatically. Because no one can accurately predict the future, the written agreement might not have enough flexibility to cover all of the changes in circumstances. This might necessitate a change from the original terms of the agreement. If such a change occurs, once again it is necessary to document it by preparing a written addendum to the original agreement and to have it signed by both sides. A common complaint is that one side might state that they will sign such an addendum, but when it is prepared, they fail to get around to it. What should a prudent business person do in such a circumstance? If every effort has been made to obtain the signature of the other side without success, then the prudent business person should send a letter confirming all of the details of the agreed-upon change, the reasons for such a change, the cost of such a change and the fact that the prudent business person has requested the other side to sign an agreement documenting such a change that the other has failed to sign. Most importantly, such a letter of confirmation should conclude with words to the effect that, if anything contained in the letter is not accurate, the party receiving such a letter should contact the prudent business person immediately. In that way, there will be at least some type of “record” of what was discussed and agreed upon.
5 — MAKE AS DETAILED A DESCRIPTION AS POSSIBLE ABOUT THE PRODUCTS OR SERVICES TO BE PROVIDED.
In the rush of business, sometimes a business person will jot down a few quick notes — without much elaboration — about what an agreement consists of. Unfortunately, this can be as bad as not having an agreement at all. If the agreement is too short and vague it can allow either side to a dispute to argue that their interpretation of the agreement is correct. Also, stating in an agreement that certain terms will be made by reference to an outside source (for example, another document) should be by way of easily determinable, and objective, statements. For instance including a phrase that one will provide the services “as discussed” is of no help at all, because this leaves open an argument over what really was discussed. If reference must be made to another source outside of the actual agreement, a better example would be to state that the services will be provided “as described in the three-page memo dated January 5, 2000, from John Doe to Jane Roe.” Last, if certain services or products are to be excluded, the written agreement should explicitly state so. The sale of a “complete” system that does not include certain components should specifically state that those components are not included — or else someone might think that saying it’s a “complete” system means that they will receive all of the components, even those that the seller had no intention of including.
6 — ADDRESS ANY DISPUTES OR PROBLEMS IMMEDIATELY.
If it appears that, despite your best efforts, a dispute has arisen, then every effort should be made to address the situation immediately. Do not let the situation continue to linger and do not try to ignore it. One side or the other might become resentful, which will make resolving the dispute only more difficult. If an honest mistake has been made, a complete evaluation of the entire situation, with the assistance of legal counsel, may help avoid a messier dispute down the road. Other methods of resolving disputes — such as mediation and arbitration — do exist. Each of these methods includes the involvement of a trained, neutral third party. A mediator works to bring both parties to a point in the middle where they agree upon a settlement; a decision is not forced upon them. In contrast, arbitration is more like litigation, but slightly less formal and usually faster. The arbitrator hears testimony, receives evidence and then renders an award in favor of one of the parties that can be converted into an enforceable judgment.
7 — CONFIRM ALL ASPECTS OF THE AGREEMENT IN WRITING — PREFERABLY SIGNED BY THE OTHER PARTY BEFORE YOU CHANGE YOUR POSITION.
This scenario usually appears in situations involving a sale of a product. Often, one side is so eager to conclude the sale that the product is shipped before there is confirmation of the actual terms of the agreement. If a dispute arises after the product has already shipped, then any leverage that that party may have had is greatly reduced. Avoid problems by working out and confirming all of the details of any proposed deal before you ship a product or before you place a deposit toward any sale. In that way, if any problems do develop, you will not have anything to lose if you just back away from the deal.
8 — PERIODICALLY REVIEW IMPORTANT DOCUMENTS TO ENSURE THAT YOU ARE FAMILIAR WITH YOUR RIGHTS.
Once a deal is made, everyone always hopes that it will work smoothly, without any interruption. Often, in a long-term deal (for example, leases), the individuals involved forget the original terms of the transaction. Then, if problems do arise, tensions increase because each side’s recollection differs over the terms of the deal. Thus, a good practice is to review the agreement’s terms before you commit to any resolution of the problem — so that you understand the responsibilities of all involved.