Of course. Here is a comprehensive guide to contract review for a small business owner. This is not legal advice, but a practical framework to help you understand the process, identify key risks, and know when to hire a professional.

The Small Business Owner's Guide to Contract Review

A contract is the foundation of any business relationship. A well-drafted contract protects your interests, sets clear expectations, and prevents costly disputes. For a small business, a single bad contract can be devastating.

Part 1: The DIY Initial Triage (Your First-Pass Review)

Before you send a contract to a lawyer (which costs money), do your own initial review. Your goal is to understand the deal and flag potential issues.

Step 1: The "Big Picture" Check

• Who are the parties? Are the legal names and addresses correct? Is you signing on behalf of your company, and do you have the authority?


• What is the core deal? In one sentence, can you state what you are giving and what you are getting? Does the contract accurately reflect your verbal agreement?


• Key Dates & Deadlines: Note the start date, end (term) date, and any critical delivery milestones. Are they realistic?


• Money: How much? When is it due? (e.g., upon signing, net 30, upon completion). Are there late fees, interest, or bonuses?

• Indemnification Clause: This is a "hold harmless" clause. It says who pays if a third party sues.


• 🚩 Red Flag: You are agreeing to indemnify the other party for their negligence or actions. This can be a massive, open-ended liability.


• ✅ Goal: Mutual indemnification, limited to your own negligence or breach.


• Limitation of Liability: This caps the amount of money one party can sue the other for.


• 🚩 Red Flag: A clause that completely eliminates the other party's liability, especially for intentional misconduct or gross negligence. Also, a cap that is lower than the value of the contract is risky.


• ✅ Goal: A reasonable cap (e.g., the total contract value or 1-2x the contract value). Ensure it doesn't limit liability for things like confidentiality breaches or personal injury.


• Termination Clause: Under what conditions can either party end the contract?


• 🚩 Red Flag: The other party can terminate "for convenience" with little or no notice, leaving you high and dry. Or, the cure period for fixing a breach is very short (e.g., 3 days).


• ✅ Goal: Mutual termination rights for "cause" (material breach) with a reasonable cure period (e.g., 30 days). If there's a "for convenience" clause, ensure it requires notice (e.g., 60 days) and covers your costs for work-in-progress.


• Intellectual Property (IP): Who owns what is created?


• 🚩 Red Flag: A clause stating that the other party owns all IP you create in performing the services. This is common in consulting and development agreements.


• ✅ Goal: You retain ownership of your pre-existing IP and "background" knowledge. The client gets a license or ownership of the specific "deliverables" you create for them, but only after they have paid in full.


• Auto-Renewal: Does the contract renew automatically?


• 🚩 Red Flag: A contract that auto-renews for another year unless you cancel 90 days before the end date. It's easy to miss these deadlines.


• ✅ Goal: Know the deadline! Mark it in your calendar. Ideally, negotiate for mutual written agreement to renew.


• Governing Law & Venue: Which state's laws apply, and where will lawsuits be filed?


• 🚩 Red Flag: The laws and venue are in a distant state where it would be very expensive for you to travel to defend yourself.


• ✅ Goal: Your own state's laws and a venue in your county.


• Confidentiality (NDA): Are the terms too broad? Are you prohibited from using general industry knowledge?

Part 2: When to ABSOLUTELY Hire a Lawyer

Do not try to handle these situations on your own. The cost of a lawyer is an investment in risk management.

• High-Value Contracts: Any contract that, if it went wrong, could seriously harm your business financially.


• High-Risk Contracts: Contracts involving significant liability, like construction, manufacturing, or data security.


• You Are Signing Someone Else's Form: Standard forms (from software vendors, landlords, large corporations) are almost always written entirely to protect the drafter.


• Complex Subject Matter: Intellectual property assignments, partnership agreements, shareholder agreements, mergers/acquisitions.


• The Other Party Has a Lawyer: This creates a power imbalance. You need your own counsel to level the playing field.

Part 3: Working Effectively With Your Lawyer

To save time and money, come prepared.

• Provide Context: Explain the business deal, your relationship with the other party, and your concerns.


• Mark It Up: Send the contract with your notes and questions from your DIY review.


• Define Your Goals: Tell your lawyer what is "deal-breaker" and what you are willing to negotiate.


• Ask for a "Mark-Up": Request that the lawyer provide you with a version of the contract with their proposed changes using Microsoft Word's "Track Changes" feature. This makes negotiations easier.


• Understand the Cost: Ask for a fee estimate. Is this a flat fee for the review or an hourly rate?

Quick-Reference Checklist

For ANY contract you sign, confirm these points:

• [ ] Parties: Correct legal names and addresses.


• [ ] Term: Clear start and end date.


• [ ] Scope of Work/Services: Clearly defined and unambiguous.


• [ ] Payment Terms: Amount, timing, and method are clear.


• [ ] Termination: How can you get out? What is the notice period?


• [ ] Liability: Is liability capped? Is the cap reasonable?


• [ ] Indemnification: Are you taking on undue risk?


• [ ] Confidentiality: Terms are reasonable and not overly restrictive.


• [ ] IP Ownership: Who owns what is created?


• [ ] Dispute Resolution: How are disputes handled (mediation, arbitration, court)?


• [ ] Governing Law & Venue: A location that is fair to you.


• [ ] Boilerplate: You've at least read the "miscellaneous" sections.

Sample Scenario: Website Development Agreement

• You Are: A small web development firm.


• The Contract: From a new client. You are to build an e-commerce site.

• Scope of Work: Is it extremely detailed? (e.g., number of pages, specific functionalities, design revisions). Vague scopes lead to "scope creep" and unpaid work.


• Payment Schedule: Is it tied to milestones? (e.g., 30% deposit, 40% on design approval, 30% on launch). Avoid a single payment upon "completion."


• IP Clause: CRITICAL. The contract must state that you own the code you write, and you are granting the client a license to use the finished website. You must own your "tools of the trade."


• Warranties: Do you warrant the site will be "error-free"? This is impossible. Negotiate for a warranty period (e.g., 30 days) to fix bugs, but not a perpetual guarantee.


• Hosting/Support: Are you automatically on the hook for ongoing hosting and support? Make sure it's a separate, optional agreement.

Treat every contract with the seriousness it deserves. A thorough review is not about being distrustful; it's about being professional and ensuring a solid foundation for a successful business relationship. When in doubt, get a lawyer. The few hundred dollars spent on a review can save you tens of thousands in litigation down the road.