Common Contract Mistakes Small Business Owners Make (And How to Avoid Them)

Contracts make every small business run.

Contracts keep revenue safe. Contracts establish every relationship your business has. They outline the rules of engagement for every vendor, client, and partner your business deals with. And when contracts are broken or go wrong — they can destroy your business.

But here’s the problem: Most small business owners just don’t understand contracts.

They skim through and sign without reading. They accept verbal agreements and handshake deals because it feels “fine.” Instead of making contracts work for them — they get steamrolled by contracts working against them.

Don’t become a statistic.

12 million contract lawsuits are filed against small businesses every single year.

The median cost to resolve a single dispute: $91,000.

Those are numbers no small business can survive.

The majority of small business contract disputes are preventable. Avoiding contract mistakes starts with understanding how contracts work and how to spot risk before it’s too late. Then, if a dispute does occur, having a knowledgeable contract dispute attorney on retainer is the best shot at a fast and favorable outcome.

What you’ll discover:

• Skip Written Contracts
• Vague or Ambiguous Language
• Missing Dispute Resolution Clause
• Signing a Contract Without Legal Review
• Forgetting To Update Contracts

Skip Written Contracts

Hands down. This is the number one mistake.

A vendor or partner meeting happens. Maybe services get discussed, terms get set over dinner or drinks. Maybe it’s just a phone call to hash it out. Either way — no contract gets written and both parties are happy as clams.

Until something goes wrong.

Then everyone wishes there was a contract.

Bottom line:

Verbal contracts get you nowhere fast. Some contracts are required to be written to be legally enforceable. But regardless of legality, a written contract protects both parties and clearly defines the relationship being entered into. Don’t skip this step.

Vague or Ambiguous Language

How a contract is worded matters.

Using phrases like “mutually agreed upon” or “timely manner” seem harmless at the time of signing. But if a dispute happens, suddenly those loose terms become battle points. “Timely” to one party might be “soon” to the other. “Appropriate quality” could mean something different to everyone involved.

Make sure contract language is as clear as possible.

• Use measurable terms. Spell out exact dates, amounts, and deliverables.
• Define what is — and is not — considered a breach of contract.

Don’t leave room for interpretation.

A well-worded contract prevents future arguments.

Missing Dispute Resolution Clause

Here’s a question that will blow most small business owners’ minds…

“What happens if there’s a disagreement?”

Most haven’t given it any thought. When push comes to shove, without a plan, agreeing to solve any issues in court becomes the default. Sure, a lawyer will try to settle beforehand. But filing a lawsuit is the default answer if a disagreement happens and there’s no plan in place.

Including a Dispute Resolution Clause in contracts lets everyone involved know that, if things go south, mediation or binding arbitration comes first.

Filing a lawsuit should always be a last resort. Not only is it costly and time-consuming — but it can destroy relationships and drain a bank account.

Memorize this:

A well-written contract and solid Dispute Resolution Clause doesn’t just protect against getting sued. It provides a clear roadmap of what to do if a lawsuit does happen.

Signing a Contract Without Legal Review

The number one way small businesses get ruined.

No one likes paying lawyers just to look at paperwork. But taking that risk and skipping legal contract review could cost tens of thousands down the line. 56% of small businesses cite legal fees as one of the barriers to operating their business. Don’t be the business that skips legal contract review.

An attorney will:

• Catch hidden indemnity clauses. The ones that shift all responsibility to one party when something goes wrong.
• Identify unenforceable language before signing.
• Verify all signing parties are who they say they are.
• Protect against signing one-sided agreements.

Get comfortable paying a few hundred dollars for a contract review. Compared to the cost of litigation, it’s a drop in the bucket.

Forgetting To Update Contracts

Once a contract is written, it doesn’t just disappear.

Just because a contract was signed a year ago doesn’t mean it accurately represents the business relationship now. Failure to continually update contracts as the business evolves creates a ton of risk. What a contract says and what the business does stop aligning.

Here’s how to prevent it:

• Review ALL contracts at least once a year.
• Update any time there’s a change to the services, pricing, or scope.
• Track all amendments in a central location. Have both parties sign and date any changes.
• Delete outdated versions of contracts. Old contracts can include illegal terms that may trickle over into new agreements.

Get Into The Habit of Updating Contracts.

How Screwed Are Small Businesses Really?

Big enough that 43% of small businesses will face a lawsuit or legal threat in any given year.

Contracts are a big part of that.

Nearly 60% of civil cases filed in the United States are contract disputes. And though not every dispute leads to litigation, being forced to defend in court costs money. Lots of money. Most businesses don’t have that kind of extra cash just sitting around.

The moral of the story?

Contracts matter. Don’t make the business the next statistic.

Contract Mistakes Small Businesses Make. NOW!

Here’s the thing. Contracts are complex. Business relationships are messy. Even with the best intentions, small business owners are bound to make a mistake here or there.

The important thing is to learn from those mistakes. Here’s the cheat sheet:

• Get contracts in writing.
• Remove ambiguity with clear, concise language.
• Spell out how disagreements will be handled.
• Get contracts reviewed by a lawyer.
• Continually update contracts as the business changes.

Take contracts seriously, and they’ll take the business seriously too.