Arnold Palmer’s handshake deal with Mark McCormack, the legendary founder of sports-marketing-and-management company IMG Worldwide, was one of the most successful business deals in history. Both men became wealthy, and neither ever felt the need to put their agreement in writing. Alas, that was in the 1950s. Today, contracts are necessary. Not using them is a clear and unmistakable recipe for disaster.
Why? It’s pretty simple. Many people don’t keep their word, forget what they agreed to, are irresponsible, and the list goes on. How many times have you been “taught” a lesson by a vendor, customer, or an employee and thought to yourself, “Next time, I’ll have that in writing.” For business owners it’s a sad and difficult lesson, but it’s true.
Recently, we moved our offices to a new location. Part of the moving process is to “clean house” and throw out everything that we’d been collecting or storing for years. I was surprised to find we had an entire five-drawer filing cabinet filled with nothing but contracts.
All of you have the same filing cabinet. When you open it up, you’ll find some of the mundane-but-annoying contracts for your phone system, internet service, office lease and dozens more. All specifically outlining the penalties you’ll incur should you cancel said contract.
If you have a bank loan, that agreement looks more like an old telephone book where you’ve pledged your house, cars, savings and children. The legalese in these documents has become so thorough that I believe there are no longer any “loopholes.” After all, over time, each paragraph has been designed with a specific “situation” the bank had to address from someone who thought they had a good reason for not repaying them.
The lesson: If you have to have a lengthy and potentially punitive contract in place, you might think twice about doing business with the intended party. Somewhere out there is probably a formula that equates the length and complexity of the contract to the value of service performed. Most contracts you enter into should be straightforward and easy for all parties to understand.
Lesson two: It’s likely that before the end of the year you’ll be renewing or entering into new agreements with the aforementioned lengthy and complex contract. My advice is to read it thoroughly, highlight sections you don’t understand and, rather than calling your attorney, schedule a meeting with the other party and their attorney and fire away. It is much better to let them pay to explain what they want you to agree to. It’s a good idea to record this meeting. Once you’re satisfied it’s time to have your attorney review the contract, but by that time all the heavy lifting should be done and the cost should be minimal.
Email me at TTanker@fvmg.com