Hospital, Tech Company, or Other - Why Contracts are a Crucial First Step

 

“Good fences make good neighbors” is a phrase that applicable in so many situations - even in drawing up business contracts.  Before you build that business (be it a tech company like Pulsara, a hospital, or even a bakery), you MUST go ahead and build a strong foundation and a good fence so everybody knows the agreed upon boundaries should a dispute arise.

 

How well do you know those neighbors anyway?  Wouldn’t it be better to have all your agreements in writing so everyone is on the same page?  It’s much easier to discuss terms and boundaries when all are excited about building the relationship than when there is a crack that needs to be repaired.  

 

Unfortunately, many entrepreneurs get excited about their vision of building a business and neglect the foundational pieces - the organizational contracts. A solid business, just like a solid building, requires a sturdy foundation.  Imagine constructing your dream home without a foundation … it wouldn’t be very sound and is a pretty sure guarantee that you're about to lose a lot of money!  

 

Contracts should provide the framework for how a company will be run, clarify responsibilities of the founding members, provide for a plan should the endeavor not succeed as anticipated, set forth an agreed upon procedure upon departure of one of the founders, etc.  In the hustle and bustle of crafting the next great business endeavor, it can be disastrous to ignore these agreements, causing your enterprise to crumble.

 

In the event that the unexpected happens, (and it always does!) well thought out written contracts can provide a safety net or at least a tool to use in deciding the best way to address the challenge.  Partnership/Shareholder Agreements provide for documented owner contributions and ownership percentages as well as providing for the  disposition of the ownership units should an stakeholder leave.  Employment agreements set forth agreed upon terms of employment providing a guide for expected behaviors and duties.  It is also essential to make sure your vendor service contracts provide for the service you expect and make very clear any limitations.  Comprehensive customer contracts will outline rights and obligations of each party, confidentiality terms, treatment of disputes and any special provisions.  

 

A lot of time and money may be spent creating the foundational agreements.  Surprisingly, the best outcome would be to never have to look at them again because things have gone along smoothly.  If you’ve built the strong foundation, well written contracts can ease the difficulty of an unexpected event by providing a plan for addressing those issues.  The optimist entrepreneur doesn’t want to focus on all the things that could go wrong in a new venture, but the more a team plans for those events with thoughtful, thorough contracts, the less impact the event will have.