Unlike a typical time bomb, this one won’t go off. There will be no warning signs. No specially trained dog will sniff it. No swat team is going to swoop in and prevent it from detonating, and luckily, it’s likely to go off at the worst possible time.
Fortunately, you can find this ticking bomb quite easily before it goes off. You can start your search by going through your file cabinets, filing cabinets, desks, and drawers for any documents that have “agreement” written on them. If they are still active deals, remove them slowly.
Agreements form the basis of many small business transactions. Transactions between customers, landlords, vendors, and government agencies are often governed by written agreements. The interesting thing about agreements is that they govern future activities to be performed under known and unknown circumstances, an inherently risky proposition unless you can predict the future.
So let’s think about when you started your small business. How much real “knowledge” did you have? Would you say a lot has changed since he first signed the necessary agreements to launch his small business? If your small business is like most small businesses, a lot has changed, good and bad. As a result of these changes, you may be in breach of an agreement without even knowing it. However, we will take care of this.
On a nice quiet morning or afternoon, grab a hot cup of coffee, tea, or alcohol (if it’s been one of those weeks) and take a few hours to review the agreements you signed to determine if you might be in breach of any of them. Bored? Sure, but it’s one of those boring necessary things, like filing a tax return or waiting at a doctor’s office. So, with your agreements in hand, you can use this non-exhaustive list of clauses that may need to be reviewed:
- Restrictions on Permitted Use of Leased Equipment
- Restrictions on who can use the leased equipment
- Restrictions on the use of the leased property
- Insurance, license and certificate requirements
- Restrictions on items stored in rental properties
- Written Consent Requirements
- Lease Improvement Restrictions
- Restrictions on equipment modifications
- obligations of the lessee
- landlord bonds
Now, if you do find something, I don’t expect it to wake up that sleeping giant (it probably wouldn’t), BUT you can start coming up with a plan to help soften the blow in case the other party starts looking for a reason to back out of the deal. for a more lucrative opportunity. You can start planning a defense, perhaps a worthwhile explanation for your breach, or looking for substitutions, like new vendors, a new location, or whatever. Once you collect information for Plan B, save it to a file in case you need to act quickly. You may even want to keep a reserve of cash on hand in case the issue could lead to litigation. Who knows, but you’ll stick to the Boy Scout motto (ie, be prepared) and your small business will thank you.
I appreciate you reading this post, but we both know you probably shouldn’t rush into your files right now and start going through all your legal documents (unless you know you’re in default and this post has reminded you of the potential financial time bomb). which is very close to blowing), but I recommend that you take out your lease, if you have one, and this may be for equipment or real estate, and just flip through a few of the pages to see if you are the beneficiary of a very favorable due to a change related to the property you are leasing. (I say favorable lease agreement because that would probably mean it is unfavorable to the other party.)
For example, if you signed a lease for commercial space in an underdeveloped community when property values were still low, but due to various revitalization initiatives in the same community, your lease value has quadrupled in recent years , you should be especially tired of your landlord looking to replace your lease with a higher paying tenant. Handshakes and smiles are great, but at the end of the day, it’s business, and if your space is in high demand and you’ve opened the door with an inadvertent violation, you’ll want to be prepared for a breach of contract claim by part of your landlord.
However, it’s not all bad with deals, so don’t worry just yet! Agreements can also rotate in the opposite direction. You may find that the counterparty is in default of something, or because of a certain event, such as a material change in prices, a default by the other party, or a change in control of the other party’s business, you may have a way out. of a contract that is not particularly in your favor. So just by reviewing your deals, you may be able to get yourself out of the unfavorable deal and stop a leak of money you didn’t even know you had.
PLUS, when reviewing your agreements, you may even find that you have more leeway to do things related to your agreement that you thought were restricted or limited. Maybe on second glance, you have 11 parking spaces instead of 10, or your landlord is required to reimburse you for some of your capital improvements. Instead of a time bomb, there might as well be a jackpot in your office!
So, to summarize the above, periodically review your agreements. You don’t have to read all the boring documents. Most will have headings that make finding relevant clauses really easy. Agreements should be reviewed frequently to ensure your small business is not in breach of any existing contracts and to determine which clauses no longer apply, and are ready for negotiations with the other party for removal. Without a thorough and regular review of your existing contractual obligations, you may be (i) subjecting your small business to additional and unnecessary expenses, (ii) unreasonably limiting your small business, or (iii) unknowingly positioning your small business company for breach of contract claim by the counterparty. So don’t let the time bomb catch you, be proactive and defuse it early.
