The Entrepreneur’s Guide: 7 Things to Do Before Signing Any Business Deals
A single signature can change everything – securing a great deal or even locking you into financial and legal challenges.
Every entrepreneur wants to find the proper deal, whether it’s a strong partnership, a critical supplier agreement, or a smart acquisition. However, one poor contract can lead to hidden problems, unexpected losses, or legal issues.
The reality is that the average cost of creating and signing even a simple contract has gone up by 38%. Every deal you make should be worth the investment. Rushing into a decision can cost you more than just money – it can cost your business.
So, how do you protect yourself? Before signing anything, follow these seven steps to ensure every deal works for you. Let’s dive in!
How to Secure a Risk-Free Business Deal
Here are the seven key steps to secure a risk-free business deal:
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Conduct a Thorough Financial Review
Financial stability is crucial for every business transaction. Without it, you risk working with a company that may not survive for long. A beneficial agreement can quickly fall apart if the other party has hidden financial challenges, cash flow issues, or misleading revenue reports.
Steps to Take:
- Request and review audited financial statements from the last three years.
- Please check for any unpaid debts, tax liens, or other obligations that may show financial problems.
- Look for any unusual changes in revenue or financial patterns that might indicate fraud.
Most entrepreneurs stop at surface-level checks like credit scores or legal filings, say the experts at Privin Investigation Network. But deeper investigative due diligence – like uncovering hidden financial issues, past litigation, or questionable affiliations – can be critical before committing to high-value deals.
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Verify Legal Documents and Compliance
A business agreement involves more than just numbers; it provides legal protection. You could inherit their liabilities if the other party does not follow laws or industry rules. Existing lawsuits, gaps in the contract, or missing licenses can lead to higher costs than you expected.
According to the Wall Street Journal (WSJ), the United States Securities and Exchange Commission (SEC) collected a record of $8.2 million in fines. This shows the serious financial risks of not following regulations. It is essential to carefully review legal papers before signing any business contracts.
Steps to Take:
- Ensure that your business has the right licenses, permits, and legal registrations.
- Look for past or current lawsuits that could suggest a history of legal problems.
- Make sure contract terms are clear, enforceable, and safeguard your interests. If anything seems unclear, have a lawyer review it before you sign.
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Investigate the Other Party’s Reputation
A firm’s history shows a lot about how it conducts business. A record of unprofessional behavior, late payments, or client complaints is a warning sign. A bad reputation might indicate deeper operational or ethical issues, even if the financial statements and legal documents look fine.
Steps to Take:
- Please check online reviews, Better Business Bureau (BBB) ratings, and industry forums for warning signs.
- Talk to previous business partners or vendors to get their insights.
- If the deal is high-value or too risky, consider doing background checks or hiring private investigators.
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Assess Strategic Fit and Long-Term Goals
Not every partnership or agreement fits your company’s growth plans. A deal may look good on document, but that doesn’t mean it’s right for your company. A partnership that doesn’t align can slow your progress instead of helping your growth.
Steps to Take:
- Ensure both parties share the same long-term goals and fit with your vision.
- Check that the company cultures and working styles are compatible; differences can lead to conflicts.
- Set key performance indicators (KPIs) to monitor the deal’s success. If you can’t measure progress, you can’t ensure both sides benefit.
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Analyze Potential Risks and Liabilities
All contracts come with financial, legal, operational, or reputational risks. Spotting these risks early can help avoid expensive surprises. Some risks are clear, while others, like hidden debts or unmentioned responsibilities, can be harder to identify.
Steps to Take:
- Do a SWOT analysis to understand the potential risks.
- Identify deal-breakers, such as exclusivity clauses, non-compete agreements, or undisclosed debts.
- Talk to legal and financial advisors for a professional risk assessment.
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Negotiate Terms That Protect You
A good contract is more than just about price; it protects your interests. Business deals should benefit both sides, but unclear or unfair terms can lead to conflicts or financial problems.
Steps to Take:
- To avoid future conflicts, clearly state payment terms, what you will deliver, and how to end the agreement.
- Incorporate methods to resolve disputes, like arbitration or mediation, to manage conflicts easily.
- Steer clear of vague language that could be misinterpreted later. If something is not clear, have it rewritten before you sign.
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Plan for the Worst-Case Scenario
Even the best deals can go wrong. Market conditions change, organizations fail, and partnerships can end. Having backup plans ensures you won’t lose everything if things don’t go as expected.
Studies have shown that disputes over breach of contract increased by 15% in 2023, emphasising the rising significance of contingency planning in business contracts.
Steps to Take:
- Set up legal protections, like indemnification clauses, to safeguard your business from unexpected expenses.
- Keep a financial cushion for possible delays, disputes, or contract breaches.
- Know your exit strategy before signing. This includes whether there’s a buyout clause, termination terms, or a set exit plan.
Conclusion
A great contract can help your business grow, while a worst one can lead to expensive problems. That’s why checking the details is important.
Before signing any contract, review the financial and legal information, foresee possible risks, and ensure the deal fits your long-term goals. In business, not knowing something can hurt you, but knowing the correct information can lead to success.
The best deals aren’t just signed – they are made with confidence.
