Orr Litchfield

Solicitors and Business Lawyers

5 reasons to review your Business Contracts

If you want your business to remain competitive and keep pace with changing markets, you need to keep the key functions of your business under constant review. As part of this process, you should put in place a procedure for reviewing all of your business contracts in order to maintain knowledge and awareness of the legal risks and liabilities of the business and to be able to plan properly. You may wish to break your business contracts down into different groups, prioritising important business contracts but not forgetting others.

For most businesses, a contract review will include matters such as their standard terms and conditions of sale and/or supply of services, key customer agreements and key supplier agreements. The nature, length and complexity of these agreements may vary significantly depending on a range of factors including the nature of the goods and/or services which your business provides, the laws and regulations affecting your business and industry practices.

There are many reasons why businesses may wish to review and/or change existing contracts or their standard forms of contract for future use. These may include the following: 

1. Changes in the law and legal compliance

You may be aware that you need to review your business contracts because of well-publicised events or changes in the law that are likely to impact upon your business contracts (for example the effects of Brexit, GDPR or proposed changes to IR35). However, it may also be the case that the law or legal practice has changed in other areas, which affect your existing or future business contracts. Somewhat inevitably, the longer the length of time since you last reviewed your business contracts, the more likely it is that there will have been changes in the law which affect your business contracts.

Compliance with some changes in the law may be mandatory. In other cases, it may be advisable to seek to renegotiate existing contracts or ensure that you alter your standard business contracts for future use.

Failure to comply with some legislation or business practices cannot only result in contractual terms being unenforceable, reputational damage and loss of customers but also lead to significant fines, the unintentional committal of criminal offences and even business closure. Accordingly, it is vital to include a legal review process in your business planning in order to maximise the chances of being able to enforce your business contracts and minimise your business risks. 

2. Ensuring that contracts reflect internal business practices

Your business contracts need to reflect your business practices. There is little point creating business contracts, which cannot be implemented by your business at a practical level unless you know that you are going to change the way in which you operate your business in line with your business contracts so that you can comply with the relevant contracts. In some cases, the failure to ensure that your business can comply with terms of a contract at an operational level can be catastrophic.

Similarly, businesses develop and practices evolve leading to changes in your business methods and operations. Inevitably, this means that your business contracts may need to be amended to reflect those changes. By way of example, improvements in technology may have significant effects on your business practices.

Long-term contracts or existing standard business contracts may contain outdated provisions, which are more or less meaningless or no longer reflect the practices or expectations of the parties. 

3. Customer engagement

Your business contracts are, to some extent, a sales document. If they are difficult to read (for example, due to small print, long sentences or lack of structure), too long or inappropriately one-sided, you may risk damaging your chances of obtaining new clients or maintaining existing clients.

Make sure that your contracts are clear, concise and reflect the expectations of the parties. Be realistic. If you are selling goods or providing services, you are likely to have to accept some level of responsibility for those goods or services.

Long sentences can lead to misinterpretation. Typically, short sentences are simpler and clearer. Use headings to break-up your business contracts and make sure that the content reflects the relevant heading. In longer documents, use an index.

Whilst technology has made procedures and the production of documentation easier, it has lead to an enormous increase in the length of legal documents. Some standard business contracts contain pages of irrelevant material. Where possible, remove irrelevant wording. It wastes significant management time and costs when preparing and negotiating business contracts and when reviewing them.  

4. Competition

You need to be aware of your competition. If your competition is offering contractual terms, which are more favourable than your own then you may need to change your business contracts and methods in order to compete with them.

This may involve focussing on matters such as pricing structures, payment terms, delivery times and similar provisions, which may require little or no changes to your business contracts. However, it may also involve consideration of other existing or new contractual provisions. 

5. Preparing your for Business Sale

If you are intending to sell your business, you should identify your objectives and goals and spend time fine-tuning your business in order to enhance your chances of maximising your sale price and minimising your risk on the sale of your business. The fine-tuning process will include, amongst other matters:

(a) a diagnostic review of the business dealing with all of the issues that are likely to arise during the sale process, and

(b) an assessment phase where each aspect of the business which needs improving is assessed with a view to determining which weaknesses should become a target for pre-sale improvement.

As part of this process, you should review all of your business contracts. The earlier you create an exit strategy and start preparing your business for sale, and the more time you spend fine-tuning it for sale, the better your chances are of maximising your sale price and minimising your risk

Establishing a consistent business contract review process will help you to ensure that you are legally compliant, maximise your prospects of enforcing your business contracts when you wish to do so and reduce your legal risks. It may also enhance your prospects of acquiring new customers due to perceived business efficiency and improve your prospects of obtaining a higher price when you seek to sell your business.

Need to talk?

If you would like to discuss the reviewing of your business contracts or putting in place a business contract review process, please contact us. We can help you to plan and prepare for the process and carry out a business contract review in a way that is right for you and your company.

Contact us

If you would like more information about reviewing your business contracts or putting in place a business contract review process or would like to discuss a potential or existing contract, please contact us by telephone on +44 (0)20 3126 4520 or +45 38 88 16 00 or by email at enquiries@orrlitchfield.com

 

 

Back to News Home