Key Contract Management Principles for Small Business Owners

While owning a small business comes with the breezy feeling of having control and a flexible work schedule, it also comes with a lot of stress, especially managing contracts.

Contract management is a core element of all small businesses. An ineffective contract creation or execution can affect an organization’s performance, cause legal disputes and result in a loss of revenue.

If you run a small business that is struggling with contract management, implementing these seven proven contract management principles will help you streamline your processes, mitigate risk, and gain a competitive edge in the marketplace.

So without any further ado, let’s get into this!

 

Challenges Small Businesses Face in Contract Management

 Small businesses, usually run by a small team, often lack the resources, time, and expertise to create well-thought-out and legally compliant contracts. Besides, there is a basic lack of understanding of contract management principles and practices, combined with limited bargaining power.

As a result, small businesses are often at risk when it comes to creating and signing contracts, making it challenging for them to negotiate favorable deals. Some of the common challenges small businesses face while managing contracts are:

1. Poor metrics tracking

2. Missing documents

3. Excessive contract redlining

4. Lack of legal knowledge

5. Contract visibility

 

Why Contract Management Principles are Crucial for Small Business

 Small business owners often face financial constraints, which can hinder their growth and create additional challenges. By implementing a series of strong contract management principles, they can ensure that all parties involved in their business are legally bound to follow the agreed-upon terms and conditions.

Good contract management principles can provide your small business with a legal cushion. Also, it can help you with things such as profitability, healthy relationships with partners or clients, a better negotiation ground, and even improved overall business efficiency.

Small business owners can be at risk if they don’t stick to the basic principles of contract management. Considering the fact that small businesses already operate with limited capital and resources, a wrong contract can often mean a loss in revenue.

 

Contract Management Principles for Small Businesses

 

1. Know the Contracts You Enter Into

While entering a contract may be as simple as signing a few sheets of paper, it goes beyond that. Once you sign a contract, you and your business become legally bound to adhere to and follow all that has been mentioned in the contract. Being a responsible small business owner, you can not allow your business to enter unfair contracts, so it’s important to know the contracts you enter into.

Here, knowing does not only mean understanding why the contract is being signed but also probing into smaller, unnoticeable details. Grab a calculator and find a magnifying glass if you have to, but never put your business into a contract you have not fully investigated and calculated.

Remember that getting into a bad contract may mean you have to take up losses legally.

2. Document Your Contract Management Process

As a small business owner, you need to document the contract management process for all the contracts that you enter. Documentation should be done from the moment a first draft is created, going into the negotiating and signing stages and continuing until the contract is legally finished.

Documenting the contract management process will ensure all stakeholders are on the same page. It also acts as legal proof that displays how your business follows all the contract’s terms and conditions. Often ignored, proper documentation of the contract management process can massively reduce risks.

3. Use Contract Templates for Common Contracts

Saving costs and cutting corners is an innate ability present in almost all small business owners. Now while you may want to cut down on hefty lawyer fees, we suggest you don’t get down on drafting your own contracts. A better idea would be to use an online service that offers contract templates since professionals create them.

Suppose you want to create and sign common contracts such as employment and lease agreements; you can browse the internet for resources. In fact, you may even find tools that let you create tailored versions of these contracts, thus making your contracts safer.

4. Ensure Compliance with Legal Requirements

Each time you are about to create or sign a contract for your small business, ensure that the terms and conditions mentioned in the contract align with laws, regulations, and common industry standards.

Being in legally compliant contracts is one of the most basic principles of contract management. It can help you avoid legal disputes, increase your goodwill and ensure that no stakeholder involved in the contract is being exploited.

5. Maintain Good Communication

At the end of the day, businesses are just paper entities, on the backs of which are humans who require positive socialization and are keen to build relationships. When in a contract, you need to maintain healthy communication with all the stakeholders that are involved in the contract.

Maintaining good communication will definitely improve compliance, smoothen workflow, increase collaboration, and cut down the possibility of legal disputes.

6. Monitor and Analyze Contract Performance

No matter how well created, a contract isn’t effective until all the stakeholders actively follow its terms and conditions and work their part. To ensure that all stakeholders, including yourself, comply with the contract, we suggest you monitor the weekly or monthly performance for each of your contracts.

Constant monitoring and analysis of performance will help you and other parties deliver specific KPIs and even identify and solve performance-related issues on time.

7. Use the Right Technologies to Manage Your Contracts

It can become impossible to juggle between daily business operations and contract management principles and practices. Therefore, in order to survive in a competitive business environment, all small business owners need to find smart technological alternatives, such as effective contract management software and tools.

Contract management software completely automates your contracts while reducing risks and improving compliance. Selecting the right contract management tools can save up a lot of time and energy, allowing you to focus on things that actually matter.

 

Final Thoughts

 Contract management is a tiring yet crucial aspect of being a business owner. Signing contracts without investigating them thoroughly and with almost no regard for documentation and legality might put you in massive losses.

By paying close attention to effective contract management principles, you can alleviate the burden of managing contracts and focus your attention on other, more important areas of your small business.

Author: Olga Mack