Common Pitfalls in Contract Negotiations and How Lawyers Can Help Small Businesses Avoid Them

Effective communication is key to business success, making it one of the most essential skills leaders and professionals must continuously hone. For instance, a previous post highlights how communication methods can play a vital role in company culture, from improving task delegation and work productivity to fostering deeper and more meaningful relationships with employees.

In addition to being crucial to one-on-one conversations and team meetings, communication is also fundamental to contract negotiation. For small businesses, contracts matter in safeguarding interests while mitigating potential liabilities when entering business partnerships. However, the contract negotiation process is often riddled with challenges, which may otherwise compromise resources and hinder the success of legal agreements. Below, we look at common pitfalls during contract negotiations and how lawyers can help their small business clients better navigate them.

Failure to listen and collaborate

While negotiation involves effectively communicating and harmonising each party’s interests, many small businesses fail to listen to and collaborate with their clients and partners. The absence of active listening and collaboration can thus lead to misinterpreting messages, misunderstanding objectives, and ultimately losing rapport. Fortunately, lawyers can serve the role of mediator and help small business owners better convey their intentions and expectations with clarity and proper legalese.

This process can start with personally meeting the clients to review the contract together, prioritising key business areas like payment terms, termination conditions, and liability concerns. It also helps to choose a communication platform through which business owners can connect and coordinate with their clients over contracts. A notable example is the Voice over Internet Protocol (VoIP) provider RingCentral, designed to help businesses of any size improve their video conferencing and meetings through artificial intelligence-backed transcription and deep sentiment analysis of conversations. This way, small businesses can stay engaged during conversations and even navigate the emotional aspects of the negotiation phase with the help of AI.

Lack of clear documentation

Another common stumbling block when negotiating contracts is the lack of clear documentation. While business-to-business contracts can be finalised verbally or via email or letter exchange, it’s best to bind the agreement properly through a written contract. Doing so can make both parties, especially small businesses with limited resources, less vulnerable to signing onto terms they have not adequately reviewed and understood.

Drawing up a business agreement can be time-consuming, whether the negotiation concerns renewing a commercial lease or maintaining a relationship with a supplier. However, lawyers can use Definely’s contract drafting software to spend less time accessing and editing legal documents and thus focus on the more complex parts of negotiations. The software also deploys AI for the active drafting stage of the contract lifecycle. It can even be incorporated into existing MS Word workflows for easier cross-referencing and the tracking of changes.

Little to no negotiation strategy

Contract negotiations can also fail when small businesses enter a deal with little to no strategy. Yet again, lawyers can help them plan a negotiation strategy that strategically considers resource allocation, timeframes and deadlines for contract terms, and the best negotiation style with a fallback position.

An article on nibusinessinfo.com.uk illustrates the importance of goal-setting in contract negotiations, as it helps businesses avoid settling for less commercially favourable terms. Depending on the type of business and contract being pursued, this step usually involves determining price and payment terms, delivery and production times, quality standards, and service levels. Such factors can also be ranked in order of importance to identify potential areas of compromise.

In summary, lawyers can help small businesses mitigate legal risks during contract negotiations by overseeing communication methods, proper documentation, and overall negotiation strategy. Like any legal business relationship, contract negotiations must also be adaptive and flexible to changing market conditions, thus entailing active collaboration between the parties throughout the contract period.