Seven Lessons to Document Your Business Deals

“When you become a full-fledged American, you will learn to appreciate American humor.”

Tesla was shocked to hear these words from Edison. The story goes like this:

Nikola Tesla was a Croatian immigrant who had moved to the United States in search of better career prospects. Around 1884, he joined Edison machine works in New York City. Though Thomas Edison—a great inventor in his own right—was fairly impressed with Tesla’s diligence and problem-solving abilities, the professional relationship between the two was sour from day one.

Allegedly, Edison offered Tesla an amount of $50,000 to improve the design of his DC (direct current) power generation plants. Tesla worked day and night on the said improvements and when he demanded the payment, Edison laughed off saying,  

“When you become a full-fledged American, you will learn to appreciate American humor”. 

Instead of paying the promised amount, Edison offered a $10 a week raise in Tesla’s salary. Having felt cheated, Tesla immediately quit his job with Edison and left.

We have no way to delve into the accuracy of Tesla’s claim about Edison’s miscommitment. However such situations are not uncommon in business dealings. That is why it is important to document your business deals. The following seven lessons should help you do that.

Lesson One: Always Get It in Writing

Even though verbal or oral agreements are legal and binding in many situations, do not rely on them. Compared to written agreements, verbal commitments are often difficult to enforce in court. In some situations, they aren’t enforceable at all. This is especially important if you are talking about a business deal. In the business world, most agreements should be in writing even if the law doesn’t require it.

In general, a written agreement poses lesser risk than a verbal commitment, because you have a document that clearly spells out each party’s rights and obligations. And in case of a confusion or disagreement, you can refer to the written contract. Learning from Tesla and Edison; always get it in writing. Likewise, any contract amendments should be well-documented as well.

Lesson Two: Identify Who is Who

You may sign an agreement with a person, and later realize that he or she was not authorized to sign the deal. When dealing with business matters, it is important to identify who is who. For instance, if you are dealing with a person who keeps agreeing with everything on behalf of his employer, it is time to double-check if you are dealing with the right person.

When in doubt, ask for clarification. Make a polite but firm request to get in touch with the person in charge. In a small company, it could be the owner himself. In a large organization, it could be a CEO. Make sure you are dealing with the right person, especially in important business matters.

Lesson Three: Keep It Clear and Crisp

Unless you are a lawyer yourself, most legal contracts may seem quite intricate to you. That is because they often use legal terminology, and in some cases, technical jargon which is fairly tedious to decipher. Nothing against the lawyers, some of those complexities are necessary to meet the legal requirements. However, the more clearly a contract is stated, the less likely are you to get into disputes. Therefore it is advisable to keep the terms as simple and clear as possible.

It is also important to clearly state the payment obligations as well as the terms that will terminate the contract. Get advice from an expert if needed. Also, the manuscript should clearly state the conditions for the termination of the contract. For instance, criteria for contract termination or penalties could be poor quality of work, delays in achieving milestones etc.

Lesson Four: Don’t Get Wrong on Legal Details

While writing an agreement, identify each party correctly. Make sure to include the correct legal name of the firms. For instance, you may make a mistake by writing Inc. instead of LLC. Double-check and be precise with the legal names. Similarly, if you are signing a deal with someone who is located in a different country or state, specify which laws and regulations are applicable to the contract.

In case, you realize a mistake after signing the contract, you can still amend the agreement. Once again, avoid verbal amendments and assurances. Get all the approvals in writing. Emphasis on written agreements may sound crazy at times but it will become the most sensible thing if you have a dispute.

Lesson Five: Specify How Disputes Will be Settled

As you may have guessed from Tesla-Edison episode, money is often the reason for disputes. Before signing the contract, make sure you understand dispute management. There should be a separate section on how disputes, if any, would be settled. Write into your agreement what you and the other party will do if something goes wrong. For example, you can specify if you will handle your dispute through arbitration or mediation instead of going to court, which obviously takes up a lot of time and money.

Lesson Six: Hire a Consultant If Needed

Contract writing is a technical field. You may be excellent in your trade but do not assume that you can deal with everything by yourself. If you don’t have the necessary background in documenting business deals, hire someone to do it for you. Depending upon the nature of the contract, ask for a legal and technical advice. If the confidentiality of the agreement allows, you may share and discuss with your team as well.

Lesson Seven: Read Carefully Before Signing the Deal

Finally, do not sign an agreement without reading and understanding it. No matter how good your relationship with an individual or a business are, always take some time to read and comprehend the terms of the agreement. If you are not ready for signing the deal, ask for some time. If it is too technical for you, seek legal advice before signing off.

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