Every business owner says it; "Do I really need a writtencontract?" The answer is "YES, YES and YES!" Using a writtencontract is like buying insurance for your business deals,but much better.

What Is A Contract?

Simply put, a contract is an enforceable agreement betweentwo or more parties. The contract contains the promises madeby the parties to one another, which is legally known as"consideration." These promises define the relationshipbeing undertaken as well as what happens if the businessrelationship doesn't work out. If one party fails to actaccording to their promises, then they have "breached" thecontract and can be found liable for damages. The damagestypically equate to what the non-breaching party would havereceived if there had been no breach.

Oral Contract v. Written Contract

You go to a party with a friend and meet someone interestedin your product or service. Eventually, you agree to providehim with 1,000 units of your product in exchange for adiscounted price. You have created what is known as an "oralcontract." He has promised to order products and you havepromised to provide them at a discounted price. Is theagreement worth anything? Unfortunately, the answer isprobably no. Why? In most states, oral contracts are notenforceable if they carry an inherent value in excess of$500. Since it is so difficult to establish the terms of anoral contract in a dispute the legal system tries todiscourage them. In fact, this legal restriction isgenerally known as the "Statute of Frauds."

Turning back to our example, what if you thought you weregoing to give a 10 percent discount and he thought it was 20percent? What if you can't resolve it and he insists youprovide the discounted products? You will end up in courtwith the dispute coming down to which party the judge orjury believes. Are you really willing to take that gamble?

With even a simple written contract, you can create a clausecontaining language that states you will give a 10 percentdiscount. If the dispute ends up in court, he is asked ifhis signature is on the bottom, the clause is read and youwin. The contract should also contain a clause requiring the"prevailing party" to be reimbursed for their attorneys feesand costs. In short, he has to pay your legal bills as well.

An additional benefit to using a written contract is the duediligence element. I realize you will be shocked to learnthat there are unethical businesses. In negotiating acontract, very specific requirements are put in writing.What if the other party starts squirming? It may be a signthey are unable to meet their obligations. Might that giveyou pause before you commit to tying up your inventory? Youcan save yourself a lot of headaches by discovering thisinformation in advance.

In summary, even a simple written contract should be amandatory bullet in your arsenal. Much like car insurance,you will be glad you have one if a business transactionfalls apart.