Starting and running a business can be very exciting and challenging. Being an entrepreneur and your own boss is seen by many as an attractive goal. It can also be extremely rewarding. However, there is another, much more mundane, if not downright boring, analysis of starting and running a business. That is to see the process for what it is, a series of legal contracts.
Running a business largely relies on contracts
Everything you do from buying your first stationary, renting your premises and taking on your first employee involves entering a contract. Contracts are two (sometimes more) sided agreements where one party agrees to do something for the other party usually in exchange for money. Buying a cup of coffee, from your favourite chain of coffee stores, is a contract. The Coffee shop provides you with the coffee and you pay them. Most other business contracts are, however, far more complex than that. They contain lots of what lawyers like to describe as terms and conditions, and can be quite complex and boring to read. Largely because they have been written by lawyers.
Reading them is, however, a must if you are not to fall foul of unexpected consequences.
Take, for instance, a recent example I came across. It involved a lady who set up a business. She needed a website to sell her goods. She entered into a contract with a website provider. They were a smaller, independent company who agreed to build the website and provide hosting for a period of five years. There were detailed terms and conditions on their website, which, presumably, she did not read.
After a couple of months the website crashed. It is her case that she lost around £10,000 worth of business over Christmas and the problems continued. Reading the contract revealed that it contained a force majeure clause. Force majeure is French for “superior force” and relates to matters which are beyond the control of the parties. It relieves parties of their liabilities for breach of contract if the contract cannot be performed for specified reasons. These clauses relate to such matters as war, earthquake and “acts of God”.
In this contract for the provision of an e-commerce website and hosting, hacking and malware were listed among the examples of force majeure. So the website providers seemed to be suggesting that having their system hacked or infected by a computer virus is in the same category as items which are genuinely beyond their control such as loss of power from the National Grid and earthquakes.
Such a clause should raise alarm bells with any potential purchaser of their services. But as most people don’t read contracts before they enter into them, the majority will never know until it is too late.
Why reading your contracts pays off in the long-term
There are very few business contracts into which you will enter that do not have alternative suppliers. That gives you an opportunity to negotiate the terms of the contracts before you enter into them. The cheapest might seem appealing at first, but that is not the only criteria against which a supplier should be judged.
Go through what you are signing up to carefully, and if you need clarification, seek it by email rather than telephone so you have a record of the questions you asked and the responses you received. If the contract is particularly significant in terms of the importance to your ability to run the business (as in the website example) or is of high monetary value, it may well be worth you seeking professional advice.
That might seem an expensive option initially, but in the long run, it is better to be safe than sorry.
For further advice, contact Michael Green on 01792 468684 or firstname.lastname@example.org.