Contract Red Flags Small Businesses Miss: A Practical Pre-Sign Checklist

For many small businesses, the biggest legal problems are not dramatic. They are slow-motion contract problems: unclear payment terms, vague deliverables, one-sided termination rights, and “standard” clauses that quietly shift risk.

Here is a pre-sign checklist that can prevent expensive disputes.

1) Scope: What exactly are you delivering (and what are you not)?

Ambiguity causes conflict. A strong agreement clearly defines:

• Deliverables and milestones.
• Who provides inputs and by when.
• What counts as “accepted.”
• What is out of scope and how changes are priced.

2) Money: When do you get paid and what happens if they do not pay?

Watch for:

• Net-60 or net-90 payment terms that strain cash flow.
• No late-fee or collection language.
• Unclear invoicing procedures or approval bottlenecks.

3) Termination: Who can end the relationship and on what notice?

Termination clauses drive leverage.

• Can they terminate for convenience but you cannot?
• What happens to work in progress?
• Are deposits refundable?

4) Liability: Are you quietly assuming unlimited risk?

Many “standard” contracts include broad indemnity or unlimited damages.

• Consider whether a limitation of liability is appropriate.
• Confirm insurance requirements are realistic.

5) Disputes: Where and how will disagreements be resolved?

Look for:

• Venue and governing law clauses.
• Mandatory arbitration or mediation provisions.
• Attorney fee shifting.

A dispute clause can determine whether a small dispute becomes a costly, time-consuming one.

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