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Why You Should Make Your Contracts Shorter

by Muriel Vega

Developing an efficient sales cycle is essential for a company to successfully scale. The process from lead acquisition to a closed deal needs to be fast, transparent and easy for potential customers.

However, sometimes an unsuspecting factor can actually halt a promising lead from joining the client roster — contract exhaustion. A long contract with complex jargon can confuse both parties at the table and lead to unnecessary discussions over clause clarification and markups.

“You’re going to have more back and forth between your customer and your customer’s attorneys and your attorneys. And at the end of the day, it’s going to take longer and cost you more money to sign up a customer,” says Chris Sloan, the Nashville-based chair of Baker Donelson’s Emerging Companies Group.

“When you’re a startup, your life is measured in cash. How much cash and how much runway you have is paramount in the early stages of the business. And so anything you can do that makes it easier for a customer to say yes quickly will translate in faster revenue.”

Sloan says that trimming up contracts helps create a seamless, positive customer experience, which can even serve as a marketing tool, since it’s the first impression of your company and your product. He shares best practices for making every new deal a swift one.

Keep it short

“A lean, precisely drafted legal agreement allows both business parties to more immediately understand the terms. When you have a contract that you’re using to sign up customers, it’s helpful to think about the contract as much a marketing piece as it is a legal protection piece,” says Sloan. “If you have a 20-page long, poorly-worded contract, then you’re going to necessarily have a longer sale cycle.”

With a shorter contract, “you’ve dramatically increased the possibility that your customer will read the contract, understand it and sign it without any markups.”

Skip the legal jargon

“It is surprisingly rare that you have to use specific magic words to make something in a contract legal or enforceable. Most of the time, the objective of the contract is to create a clear and accurate representation of what the business deal is. Understand a contract’s goal — to set clear expectations for the deal and accurately allocate risks,” says Sloan.

Discuss with your attorney prior to drafting the contract and outline key areas for legal protection, says Sloan. Cut legal jargon — words and phrases like “heretofore,” or “subject to the foregoing” are unnecessary. Aim for simplicity, accuracy and clarity.

Keep your clauses simple

“When I’m writing a contract, particularly that’s going to be used for sales, I tell the associates on my team that every single word needs to defend its life. And if there’s a single word that you can’t make a real case for why it needs to be in there, then we’re going to take it out,” says Sloan.

“Clauses need to provide an accurate description of the business deal and protects the client in all the ways that are meaningful to them. There’s an expression that says, ‘If I had more time, I would have written a shorter letter.’ We’ve seen numerous examples of this thought process translating directly into a more effective sales cycle for our clients.”

Avoid ambiguity

“There is no reason to double-write numbers,” says Sloan. “There’s no reason to put the numerals in parenthesis and then write out the words beside it. And not only does it add no value, I see this all the time where somewhere in the heat of the negotiations, someone will go into the contract and change the numbers that are in parenthesis but they don’t change the words beside them. And so now you’ve got an instant ambiguity.”

“I had an agreement from a multi-billion dollar healthcare device manufacturer. One of their sales contracts came across my desk just last week that had exactly this problem in it. In the contract, it had one number in the parenthesis and the words written out were a different number.”

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