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Three Ways Your Contracts Define Your Business


We live in a contractual world. Regardless of a business’s size or scope, negotiating and signing contracts is an important (and fairly routine) part of operating a business. Depending on the complexity of the matter, it may be wise to involve legal counsel prior to entering contractual obligations. Of course, plenty of executives are adept at the art of contract negotiation, so experience and custom may dictate whether legal advice is necessary. No matter who finalizes an important contract, once it has been executed, it can’t simply be filed away and forgotten about.


Because contracts have become such an essential aspect of doing business, the importance of managing these contracts cannot be overstated. Companies must recognize that contracts do so much more than dictate the outcome of potential legal proceedings. Here are some examples of how contracts serve as a company resource:

Contracts Establish Expectations and Outline Obligations

A person can learn a lot about a company based on the contracts it requires of others. For example, some companies may have rigid employment requirements or extremely detailed service requests, whereas others may be content with broad, one-page agreements, boilerplate language, or even an oral agreement quickly summarized in an email.


In general, the more detailed a contract is, the more important it is that a company keeps abreast of key dates and anticipated deliverables. Businesses can use contracts to establish clear expectations and outline specific obligations, and with consistent monitoring, ensure that the terms and conditions are met. By doing this from the outset, companies are less likely to run into issues down the line.

Contracts Control Confidentiality and Protect Property

Confidentiality, non-disclosure, and non-compete agreements may be some of the most important contracts a company will encounter. Obviously, there are certain sectors where such contracts are particularly prevalent, such as life sciences and technology.


Ultimately, any business that relies on unique intellectual property or has a distinct competitive advantage must ensure that each and every person who gains access to company information (for whatever reason) signs and abides by the pertinent agreement. If a number of individuals must access such information (for example, in a fundraising round or potential merger), it is imperative that companies have these types of contracts circulated, signed, safely stored, and routinely monitored for compliance.

Contracts Fix Financials and Affect Accounting

A lot of companies enter contracts for the payment and receipt of goods needed for manufacturing or production. These contracts tend to explain, at a minimum, the price, delivery schedule, and duration of the agreement. Sometimes such agreements also outline future price increases or the timeframe for a discounted renewal, among other matters that may affect the cost of production. As a result, these types of contracts are critical to a company’s budgeting and accounting forecasts and must be reviewed regularly.


Depending on the size of a business and the market it serves, there may be hundreds or even thousands of contracts to oversee. This may require attention on a daily, weekly, or monthly basis. In the end, companies should consider utilizing a service specifically geared toward contract management to streamline the process.

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