How to deal with contracts

I've come across a few opinions that pointed out that there are not enough resources for startup founders on financial and legal topics. I have been leading tech companies for 10+ years in an environment where both of these topics are very important, so I've decided to share what I've learned to see if people are interested.

I'll start with the legal part. I have no formal education in legal matters, so whatever stands here is truly just the business owner's perspective.

My bootstrapped business was very short on cash in the beginning so getting expensive lawyers to write every one of my contracts was not an option. Here are some basic rules for bootstrapped founders to avoid common mistakes.

1) You must have contracts.

Many small business owners think it is enough to have a verbal agreement to start a business arrangement. This is a bad idea. One of you will eventually forget the details of the deal, which will lead to disagreements and hurt your relationship in the long run. The second reason is that you will sooner or later come across dishonest partners who will simply not do what they promised. If your agreement is not in writing, they will have a very easy job doing that.

2) You must have contracts with everyone.

Don't think that you need written agreements for suspicious partners only. Every partner looks like a good one at the start. Otherwise, you wouldn't be doing business with them, right? You will usually realize that you are dealing with a bad partner after you've been working together for some time. If you don't have a written agreement before your problem, it will usually cost more to resolve the issue.

3) Offer to prepare the contracts for new deals.

Most people hate writing contracts, so this is usually a suggestion that is welcome by your business partner. If you are the one drafting the contract you have an advantage, and your terms are more likely to be included in the final agreement. If you don't have drafts already, you can usually find some online and change them to your needs.

4) Read every contract you sign.

Reading contracts is boring, and your partner seems like such a trustworthy person, right? NO! You seriously have to read every contract you sign. I've seen people completely wiped out after signing something they shouldn't have. Don't be like that.

5) How to write a contract?

• First write down what you and your partner will do and when. If this is a terms & conditions document just explain every service/offer in detail with their prices.

• Write down what will happen if the above obligations are not met. Typical ones: what if services are not delivered, or if money is not paid.

• Describe how long your contract lasts and how you or your partner can terminate it if they want to.

• Finally: add any extra requirements. Typically: non-disclosure agreement and any other details go here.

6) What is a good contract like? A good contract:

• is easy to understand. Everyone who reads it should see clearly what it means.

• covers every possibility. Just like your code shouldn't crash on a missing input value, your contract should have a part for every event that can happen during the business relationship.

• should be improved continuously. Did something go wrong with your deal? Update your contract for the next time, just like you would fix your code if a user found a way to break your app.

7) Sometimes you need a lawyer

If your deal is too important it's still a good idea to get a lawyer involved. You can save a lot of money though if you prepare the draft yourself and just have the lawyer review it after it's done. This is not just for saving money, but also to have better contracts. The lawyer won't understand your business, so he/she won't really know what to defend against or prepare for.

Ok, this is it, for now. I'll save the rest for later. Let me know if you find this useful or if you have any questions.