contracts, negotiations, sales
Contract terms do matter. on
Contract templates alone will not do the work for you that saves you money and time. Whether you are a startup entrepreneur or a seasoned CEO or CFO, paying attention to your business needs and having them reflected in a contract pays dividends to your company, i.e. more profit and less wasted time fixing problems and collecting payments.
In this final part of our series on ten terms that can make your company money and save time, we discuss statements of work, shipping terms, termination rights and payment terms.
- Statement of work or deliverable requirements
. Drill down to specify what your customer should provide for you to be able to provide the service or good. Remember the adage--who, what,when, where, how and why in drafting your SOW. What assumptions need to be spelled out, e.g. expensive items that you will not be providing? Provide an extension of time budget in the SOW so that you don’t lose the contract over a minor delay. Can you specify that the development of the deliverable is a separately priced item? Coming up with the deliverable specs is work you should be compensated for as many companies have not clearly formulated what device, capabilities, etc. they need.
- Shipping terms.
FOB shipping point or FOB shipping origin means the customer pays shipping and takes ownership as soon as the goods leave the dock. FOB destination—means the seller pays shipping terms and bears risk of loss until goods arrive. Shipping costs and insurance affect your bottom line.
- Termination Rights. Y
es, there may be a customer that requires so much hand holding and extra work for your company. There are some contracts that cost a seller far more than they will ever make on the sale. Make sure you have termination rights to get rid of the customer from hell.
- Payment Terms
—Cash flow can allow a company to live or die. Whether it’s a net 10 discount (some inflate the total price by that 10%), getting some money up front, or phasing payment to deliverables, you need to keep a tight rein on payment. If you can get a retainer up front, have that apply to the final invoice. Consider selling your time in prepaid blocks (particularly useful where you are consulting or providing maintenance and the customer is notoriously slow pay).
We're in the business of helping you make money and in mitigating your business risks.
As Warren Buffet puts it, "Risk comes from not knowing what you're doing" and"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."
We hope this blog series on contract terms has helped educate you on how contract terms can make you money.
Contracts, negotiations, sales
In this second series on contract terms that are buried treasure, i.e. terms that make money and save time for your company, we look at acceptance, right of return and service contract provisions. If done correctly, shortened acceptance time, limited right of return and service provisions can add to your bottom line.
The acceptance of your goods or services, the right to return those goods and service requirements are all contract terms that can make a contract profitable and efficient from an administration standpoint or they can be a sink hole for your balance sheet and employee time. on
Here are some questions and strategies on these contract terms you need to ponder when looking for ways to make a contract profitable and easy to manage:
- Approval/acceptance process
. If a customer gets 30 days to accept or reject your goods, you may be required to redo more items, especially if the specifications are vague and they are holding up payment. What's the shortest time you can specify for acceptance? If they reject, how long do you have to respond? Also, you need to specify a total length of time for this rejection/acceptance period so you are not bogged down in weeks or months of modifying or changing a product, let alone not get paid for the goods and/or services.
- Right of return
. In the retail or consumer industry, return rights are routinely granted and may take the form of product obsolescence protection, stock rotation, trade-in agreements, or the right to return all products upon termination of an agreement. Some of these rights may be expressly stated in contracts with customers or distributors, while others are implied during the sales process, or based on historical practice. Return rights need to be clearly stated in contract or disclaimed if you are not giving those rights. Not only does this cause problems with revenue recognition but it’s difficult to estimate the amount of returns. And if you are in other industries, you need to expressly limit the right of return, if any, to a certain time period.
- On site versus remote service
. Service charges are often where companies can make money. Who will pick up the tab for travel and expenses if you have to go to customer facility to provide service? Are you able to include service/maintenance charges as part of ongoing contract charges? Do you provide a step process to avoid unnecessary on site trips? It’s not just the travel and on site time—there are employee hours lost in travel and productivity which won’t be reimbursed.
In the next blog post, we'll look at payment terms, shipping terms and termination rights that can be profitable and efficient for your business contracts.
contracts, negotiations, sales
Business owners, startup founders, CEOS, CFOs and the sales people all do it--they scan the business contract looking for the dollar amounts first and then maybe the key dates and quantities. But there is much more in those business agreements that affect price than the dollar amounts. on
In this blog series on critical deal terms that can save you time and make you money, we lexamine often overlooked contract terms that can add to your bottom line. Read more about the hidden treasure in business contracts.
There are 10 critical terms in business contracts that can make the deal profitable and save your company time.
The contract price is not the end all, be all.
Many businesses have signed a contract only to find hidden costs, losses and unexpected time commitments as the contract job unfolds.
Here are the contract terms you can negotiate to make profit instead of unexpected hits on the bottom line.
1. Insurance requirements
—big companies often ask suppliers, consultants and contractors to have a high dollar amount of insurance, e.g. 5 million in catastrophic general liability (CGL) coverage. You may have no CGL coverage or only $1 million. Before you give them your bottom line dollar amount for providing services, widgets, etc., find out what their insurance requirements are and if they will allow you to have less coverage (they typically won’t allow you to have zero insurance).
Also, cyber insurance is being required by many companies now. Do you know what your cost is for cyber insurance and have you factored it into the price?
2. Personnel are required on the job
. If you only need one person to get the job done in the required time and the customer wants two, your costs could double. Make sure the contract specifies tasks to be done in a certain period not the number of personnel. Also, have you correctly factored the number of employees required to do the job into the price?
3. What is warranty on service or good you are providing?
If they want 90 days and you only provide 30, you need to figure out how likely warranty service is going to be required. Have you factored in likelihood of warranty work into your cost structure? Is an extended warranty a selling point that won't erode your bottom line? What's the industry standard on warranties for the goods or services you provide?
We'll continue next time with more contract terms that can make profit not losses from your business agreements.
When should you use an online legal service? A recent meeting with an entrepreneur points out the problems you might encounter. on
The company founder got one of the best known online legal sites to file two trademark applications for the startup company. Both trademarks were denied by the trademark office with good reason—the trademarks were merely descriptive. Even non lawyers realize "Software Company" won't cut it as a trademark for a software company--this company's trademarks were no better.
The company paid the online site the same price most trademark attorneys charged--no savings there. Plus the company now faced spending more money to either contest the trademark denials or file new trademark applications. To make matters worse, the company was in the midst of revamping its website with the same name as the denied trademarks. And the names used were weak from a marketing and branding standpoint let alone sufficient as trademarks..
How well did the online legal company do? What should the company have asked before using the online legal service? Read more...
So how well did the online legal service perform for the startup company seeking trademarks?
- They charged the same price as most attorneys for preparing trademark applications.
- The two trademark applications were denied for being merely descriptive.
- They gave no advice regarding the strength of the trademarks.
- They did not inform the founder of the risks should the trademark office turn down the marks
- They failed to ask the startup about the branding strength of the names.
- They did not determine what domain name the founder was using nor the status of the website
- No information on consequences of denial, i.e. what costs the company would incur if it had to change the names for trademarking and website development purposes, was given to the company.
This founder's experience is not a resounding plug for the effectiveness, affordability or speed of online legal services. We think technology based companies should be extremely cautious before using online legal services.
Here are some questions your business should ask before deciding to use an online legal service:
- Do we understand the process for this legal action or document?
- What happens if there’s a denial of the application or document? What additional costs will we incur?
- Will someone tell us if this is the right thing to do for our company?
- What do attorneys charge for this document/application?
- Are we at risk of having to make this application or prepare this document again? Will it cost us more in the long run?
- How critical is this document/application for our company?
If a company’s document or application involves ownership, intellectual property, branding, tax consequences, funding or getting paid, and employees or independent contractors, companies should first contact attorneys to determine costs, consequences and get affordable advice. With online legal services, the cost savings may or may not be there, the advice is likely generic if at all and the risks of using a template form may far exceed the cost of using efficient, effective counsel.
Give us a call or email about our effective, efficient legal services--we believe legal counsel should inform, educate and advise companies on risk assesment and the right road to take.
Small startup businesses often feel they cannot compete against large businesses who have money, existing customers, branding, distribution, marketing, etc. on
However, the profitable revenue stream of large companies is their weakness upon which small businesses can capitalize. Here's how your cost structure can enable you to grab business from a big, profitable company.
Large corporations are so focused on meeting quarterly numbers and have to protect their profit stream at all costs, even if it means foregoing technology. That's where small companies with innovation and new cost structures can compete, as Jason Cohen, a software company founder, points out in a recent insightful blog post
A nimble startup can charge far less whereas the big company engages in price cutting at its peril. When a large company makes a small change in top line revenue by price cutting that can create huge changes in profitability for the company.
Check out Jason's blog post
for more discussion on pricing and cost structure in competing with large corporations.
Should you try to raise venture capital or not? That's a question entrepreneurs have struggled with since the late 90s. We tell Colorado startups that you have a better chance of getting hit on Long's Peak by lightning than getting VC funding. The stock market and global economics may further decrease those chances. Here's a great checklist from Sara Guo of Greylock Partners on whether your company should be venture backed:
The on key gut check items on whether to get venture funding
, according to Sara Guo's checklist
"Can you do it without venture money
? If so, and you’d be happy with the trajectory that option offers you, why raise money?
Are you willing to trade ownership in your company (and some control) for a partner in your corner who will hold you accountable for their capital?
Do you like and trust that partner and their organization?
Are you personally ambitious to build a huge commercial business that will have impact on many people?
Is that a driving priority for you? To define “huge,” are there acquisition or IPO outcomes for that business that will drive a multiple on investment that will excite your VC backer? "
Check out the rest of Sara's article
on seeking venture capital or not. There are indeed other ways to successfully start and fund a non venture backed company.
Employment, Independent Contractors, Contracts
Do you know who your employees are? More courts, not to mention states looking for more tax revenues, are looking closely at whether your independent contractors are really employees. on
Uber, the ride sharing company, now faces a California court challenge as to whether its independent contractors aka drivers are in fact employees. In the sharing economy, using contractors not employees is one way to shave costs and circumvent existing regulations and/or monopolies. Having lost on summary judgment, Uber is facing a class action trial on whether Uber drivers are employees and whether Uber’s business model can be sustained.
Whether you have a disruptive business model based on sharing or not, here’s a summary of the risks you face in misclassifying employees and a list of ways to protect your company.
Risks of Independent Contractor being Found an Employee of Your Company
Here are some of the potential risks you face if your company is found to have wrongly classified a worker as an independent contractor as opposed to an employee:
1. Penalties, liquidated damages
2. Wage and Hour Claims
—minimum wage, overtime, penalties and liquidated damages
3. EEOC/discrimination claims
4. Workers Compensation/Unemployment/Short term disability
5. Tax liability
--federal and state.
—failure to verify identity and unauthorized employment of foreign nationals.
7. Audit by government agency
8. Fines and Criminal sanctions
9. Attorneys fees
(yours and possibly those of successful claimants).
List of Ways to Protect Company from Claims of Employment by Contract Workers/Independent Contractors
Whether it's the IRS list of 20 factors determining employee status or the State Department of Labor rules for your company in the state you are located in or the state where you have employees or contract workers or the federal Fair Labor Standards Act, the rules and factors are complex and confusing. It doesn't help that many court decisions say the finding of employee status depends on the individual facts of the case. However, the following actions may help your company avoid or minimize such claims:
1. Written contract
—it helps establish independent contractor status. Without it, you don’t stand a chance.
2. Specify the result not the process or method
. You can specify a company contact to make sure milestones being met and project isn’t off the rails. Don’t give employment reviews.
3. Don’t dictate the time and date
s independent contractors must show up at company.
4. Degree of supervision determines employment status
. Assigning a supervisor or direct manager the contractor must report to is not a good idea. See #2.
5. Length of service
. If worker has been there for one or more years, more likelihood he/she will be found to be an employee. See #6 for mitigating factors.
6. Unique work and specialization reinforce independent contractor status
. If work is common to both employees and independent contractors, there’s a higher likelihood of employee finding.
7. Treat your independent contractor as vendor/supplier
. Assigning desk, email, business cards, badges and other employee perquisites to independent contractor makes them appear to be an employee.
8. No employee benefits should be provided to independent contractors
, e.g. sick leave, holiday pay. They pay for insurance, disability, retirement, etc.
9. Contractor should supply his/her own tools, equipment a
t own cost and maintain.
10. If independent contractors need help, they should hire subcontractors
. If your employees report to the contractor and/or work is integral to company, contractor may be deemed employee.
If you have independent contractor issues, call or email us
Spring means graduation and job searches for students. Feel free to forward on the presentation we did to University of Colorado engineering students earlier this year. We hope you and anyone you forward this checklist to finds it useful. Here's the list:
Negotiating Your Salary, Career, Life
Six Negotiation To
—emotion destroys negotiation, be dispassionate and empathetic.
—collect your thoughts, take notes before and during negotiation
3. Find Decision Maker
—who signs off, responsible for budget of dept.
4. Focus on your Goals, Not on Who’s Right
—what you are trying to accomplish
5. Make Human Contac
t—People are almost everything in negotiation. If you can't meet them in person, call before resorting to email.
6. Acknowledge Other Party’s Position and Power, Value Them
—Role reversal, put yourself in their shoes; Let them talk, ask questions. Their words and perceptions are more important than yours---more you value them, the more you listen.
7. How can you help them? Use their standards to reach your goal.
—find out salary ranges thru recruiters, classmates, LinkedIn contacts you know, past employees. If they ask what you made or expect to make, answer with question back—what is your salary range. Understand the cumulative, lifelong impact of 1st salary.
—Negotiate, it shows strength. If you get an offer, say thank you! Is there room to negotiate money or benefits or work schedules or projects? If it’s clear no flexibility, then ask when you will be re-evaluated and the standards used for determining a raise. Get hiring manager to be specific as possible. Follow up with confirming email.
3. Don’t Commit Immediately
—tell them you need to think about the offer. If offer is low, use data to show them why it’s low. Get more details on job—responsibilities and travel before committing.
—don’t come with a list of 10 items you want. Know what’s a deal breaker for you.
(folks who will advocate for you), not just mentors. You need influential sponsors who can give visibility to your accomplishments and advocate for you as an organizational leader, valued employee.
2. Ask your boss(es) what job expectations are, confirm in friendly email, and update them periodically on what you’ve done.
No one will know or give you credit if you keep your head down and do good work. Understand salary/compensation system in company or firm. Ask for specific criteria for raises or job promotions.
3. Give credit on emails to folks who’ve worked with you to get job done
4. Build your network
early and continue to add to it.
5. Get out of the office.
Avoid the good worker will get rewarded syndrome.
6. Desensitize yourself to risks, asking for what you want takes courage, speak up, and ask for stretch assignments
. “What would you do if you were 10 times bolder?” Expect pushback and be prepared.
7. Everything is negotiable.
“No” is just the beginning of the conversation. Don’t assume the worst or bad intentions of the other side.
1. Negotiation isn’t just for jobs and your career.
It’s for the marketplace (think cell phones, credit cards, homes, goods, etc.), relationships (family, partners, spouses), travel, service providers.
2. Relationships—ground rules, tone is important, not going to solve every issue at once, everyone can’t get everything they want all the time
, I’m right you’re wrong syndrome isn’t useful, whatever your belief you still respect the other’s belief, if tension develops—stop, take break and come back later.
3. Emotional payments
—empathy, apology, concessions, respect, face saving, staying quiet when someone is saying mean, hurtful things, listening, valuing people. This can provide a solution to an irrational need. Emotional payments are what establish strong bonds in a relationship.
4. Trading things of unequal value can break logjam in relationships.
Whether it’s cleaning, sports on TV, child care, visits to parents—there’s likely a way to trade something for what you want accomplished. Find out what each party cares for and doesn’t care about. Note to those embarking on marriage, living together, and raising children—try to get the ground rules established up front when there is still a “honeymoon”.
5. Use other’s standards to get more.
Whether it’s their policy, exceptions, precedents, ways they make decisions—people will be fairer when confronted with standards (especially hard bargainers).
6. Be open, honest. It’s not about being tough or a jerk or manipulative
. If you are in bad mood, too aggressive or don’t know something, say so.
7. Every situation is different, there is no one size fits all
. Keep your eye on your goal—it’s about getting more (not everything).
At beginning of talk, meeting, ask “What do you want at the end of this discussion that you don’t have now?”
, Stuart Diamond.
Influence, the Psychology of Persuasion
, Robert Cialdini.
To Sell is Human,
Crucial Conversations Tools for Talking When Stakes Are High,
Contracts, Insurance, Cyber Security, Data Breaches
Many large companies are asking their vendors and contractors to get cyber insurance and to make certain contractual commitments, especially after Target and Anthem Insurance's recent data breaches. Our on earlier blog post
discussed how to navigate those contract terms.
For small and medium sized businesses, it's critical to have the right amount of coverage based on your size, industry, data you keep and security measures you've taken or are willing to take. Here are some tips on buying cyber insurance for your company:
1. Do you need this insurance?
If you don’t handle personal information or have access to it, you may not need it. However, your customer may insist on it if any type of confidential or business information is involved with contractual services you provide.
2. What type of cyber insurance do you need?
Insurance brokers say there is little uniformity in the policies provided by insurers. However, one type of policy can cover only your expenses and/or losses, i.e. damage to your own organization (first party coverage) and the second type covers costs associated with third party liabilities, i.e. claims from other companies. You can also get a combined first party and third party policy for more protection. Make sure your policy limits are adequate—your IT people and a broker knowledgeable about cyber insurance can help you get the right amount. Also check on sublimits (these are usually for crisis management costs, notification costs and regulatory investigations)—you can sometimes get more coverage for such sublimits without a substantial premium increase.
3. Make sure you ask for retroactive coverage
—the earliest date possible. Experts say that some cyber attacks found on networks that have been there for months or even a year.
4. Get coverage for loss of data not just theft of data
. Negligence can also result in data breach, e.g. employee loses laptop.
5. Make sure your insurance works with your contract indemnities
to your customer or your vendor to maximize your coverage.
6. Pay attention to exclusions.
Some cyber policies exclude coverage for "any guarantee, warranty, contractual term or liability assumed or accepted by an Insured under any contract or agreement." These contractual liability exclusions are sometimes used by insurance companies to deny claims. If the policy has a contractual liability exclusion try to eliminate it.
7. Ask about the price for coverage for data restoration costs
—it can be expensive to restore data.
8. Understand what triggers coverage under your cyber policy
, e.g. date of loss or date claim is filed. If you don’t provide timely notice your claim may be barred.
9. Make sure you understand what devices are covered,
whether personal devices, home offices, and laptops, tablets and phones are included, and whether coverage applies to unencrypted devices or data offline at time of breach.
10. Make sure your cyber policy works well with your existing insurance policies
Even if you buy minimal coverage of $1 million, you may get help with response and recovery and legal defense depending on the policy you get. You will get access to those resources at rates negotiated by the insurance company as opposed to the higher emergency rates you’re likely to be charged if you have no insurance. It’s critical to get a good broker who can help you get the best right sized policy for your company.
Contact us if you need help with cyber security contract issues.
Purchase Orders, critical to every business wanting to sell its goods, are often viewed as boilerplate, tossed over to accounting and seldom scrutinized or negotiated. However, companies can profit on purchase orders if they negotiate with procurement. Whether it's quantity, duration or termination of the contract, these purchase order tips may add to your bottom line.
1. on Negotiate Terms
. Buyers will tell Sellers that purchase order is non-negotiable. However, you can negotiate terms. Hidden costs in moving to a competitor, risks in supply chain, learning curve on new technology, additional costs of competitors which add to total cost--these items can give you leverage. You may provide additional services or have a unique product offering. These are all sources of power you can converse tactfully about with Buyers.
Get to know them as people first. Talk to them about their job, areas they cover. What can suppliers do to make their life easier? Talk to them about the weather, their location, family. Human connection must occur before you can find out about flexibility and workarounds.
3. Use your Contact(s)
. Ask your contact at Buyer (a) to introduce you to Procurement, (b) to let you know if there is a master agreement that controls over the P.O., (c) to help you if negotiations get stuck with Procurement to speed up delivery of your goods/services.
4. Dealing with Bids and Requests for Proposals
. Use any preexisting relationships with the company and procurement to ask, well before the end of the contract, about renewals and see if bidding is coming. Check with procurement to see if you can give them criteria to use for buying your service/product. Conversely, if you aren’t an existing supplier, find out if the bid outcome is preordained, especially if another company has been a longtime supplier.
5. Resolve the Battle of the Forms Issue
. If a seller sends goods without a response when the Buyer’s terms and conditions limit acceptance to those contained in the Buyer’s offer, Buyer’s terms will control—there are a number of reasons Sellers don’t want this, e.g. acceptance, risk of loss, etc. a Seller should make sure that goods are shipped only following express and unqualified acceptance of the seller's terms. If that can’t be done, get a written agreement.
6. Get a Written Agreement
, if it’s important enough. Provide in the agreement that the terms of that agreement prevail over any purchase order of Buyer or Seller or other document.
7. Dealing with Tough Tactics
. Buyers may threaten to put contract out to bid, buy from competitors if you don’t cut price, make unreasonable demands, misrepresent facts, get angry. Don’t respond in kind. Be prepared—justify what you’re proposing and why. Possible arguments (backed up with facts) why you won’t make price concessions—market doesn’t justify price, their pricing is inconsistent with your pricing to others based on volume or spend. Determine if competitor is going to cut services, features, quality, etc. so they can make a profit? Get something in return if you make a concession—change scope of deal, volumes, timeliness or decrease add-on services.
8. Look for Metrics beyond Price and Cost Savings
. Ask Procurement and/or your company contact, what are the end goals? What impact does quality, convenience, service, features play in Buyer’s ability to meet those goals, desired results? Who is procurement accountable to and what are they asked to deliver. What are the risks they’re concerned about in the supply chain?
Find out the name of the person in charge of payment and who actually does the processing. How are payments made? In other words, do they pay on time, what documentation do they require? How do they process your invoice? Who approves those invoices? From the time the invoice is approved, how long does it take for a check to be cut? Who signs the check? What’s the approval process? Agree on payment dates. Use the term on or before to make it clear when payment is due. Get agreement on what happens if payment is late—who can you call? Be pleasant and friendly—you want the buyer’s folks to understand you want to get paid. But don’t be pushy and make them think this company and this sales person are going to be a royal pain in the neck and they haven’t even delivered the product or service yet.
10. Mutual, Fair and Reasonable
. Use this as your mantra with the other side. You want a constructive and fair outcome in reaching agreement with Buyers.
on How to Use Email to Negotiate
While face to face negotiations are always better for closing business deals, email negotiations are on the rise. Researchers have found (and common sense tells us) that email negotiations lead to less satisfying agreements and an even greater rate of failure to reach agreement.
Our preferred negotiations approach? Face to face first, phone second (including Skype) and email last. If the only alternative is to negotiate via email, we have the following tips:
1. Talk first.
No matter what the other side says you have to talk to them. Ask for email address, mailing address, whatever. You have to make some connection with this person other than through electronic dispatches hurled over the cyber wall. And picking up the phone during negotiations can be awfully handy to clarify, get context and attitudes not appearing on the printed page, and just connect. Civility goes a long way in this dizzy digital world.
2. Plan, have agenda.
Emails lead to stream of consciousness negotiation. Priorities, planning and problem solving don’t lend themselves to short digital salvos.
3. Ask who has authority
. You will go through email torture if you learn that all your negotiation efforts have to be approved by the man behind the curtain. The man needs to be cc’d and involved.
4. It’s not just the email.
It’s not black and white. How many times have you pored over an email wondering why they were so rigid, inflexible? You are only seeing those words on the page—you are not hearing their conversations, their tone, their perceptions, their feelings. ….. Emails can often come across as too aggressive. Don’t fire off an email based on your first reaction—wait, reread their email and your response. Haste does make waste.
5. Ask questions.
Ask such questions such as “who, what, when, where, why and how. Ask up front, not when the deal is almost done. See #4, it’s not black and white.
6. Be clear.
The digital revolution did not do away with the need to write well and clearly—if anything it demands more clarity when no one is talking to each other.
You will not go to the inner rings of hell if you send the first email (unless you are caving and capitulating in that email). If you want a speedy reply, let them know. Likewise, if you have unduly dithered, at least man up and acknowledge your response was slow. And don’t read too much into delay—not everyone responds to emails within seconds, minutes or even 24 hours. Also, make it clear who needs to do what when and set realistic deadlines. Otherwise, you may be waiting forever for a deal that never comes to pass.
Connect with the other side if only to commiserate on the local team or the weather. LinkedIn can help you connect by knowing their background. You needn’t pander or tread into verboten territory (religion, politics).
9. Price is not the only number.
If this is a mathematical equation, i.e. offer is X, counteroffer is Y and you split the difference, you may have really botched deal. Why? Shipping, warranties, terms, service levels, returns, renewals, etc. can render a deal wholly unprofitable.
10. Written Agreement
. Email won’t cut it. Sure you think email will constitute written agreement and it's binding. Maybe. How much do you want to pay a high priced litigator to find out? And how will that email agreement look when it comes time to collect on overdue AR, resolve a problem or sell the company? Get a written agreement.
Contracts, Cyber security
Cyber attacks on Target, Snapchat, Adobe Systems and several large U.S. Banks in the last year have caused many large corporations to focus on cyber security and the role of their vendors in protecting data. Whether you are a software company, cloud based service provider or on the ground service provider to large companies, there are a number of security related contract terms that large companies likely will ask of you. on
Here are some of the items large companies will try to negotiate in contracts to protect their data:
1. Indemnification provisions
that deal at length with data security breaches. If the company gets third party claims, they will want you to pay their losses. The company may ask you to defend them for losses they suffered because of negligence or intentional acts of your vendors and subcontractors.
2. Limitation of damage provisions may not apply
to data security breaches (or such provision is totally eliminated).
3. Warranties by your company as to data integrity, monitoring and security
(translated you promise to keep our data secure and we can sue you if you breach that promise). Related requirement for paying for offsite backups and/or total liability for loss of data.
4. Expanded data rights on part of your big company customer
as to access and your responsibilities should suit be filed or law enforcement wants information. Expanded responsibilities of your company as to data preservation, security, destruction and accessibility of records after your contract is terminated.
5. Restrictions on location of data and required approval for cross border location and/or export of data
6. Increased audit rights by your customer
as to reports and actions your company takes to prevent vulnerabilities and comply with security requirements.
7. Levels of service, minimum response times, detailed disaster management and business continuity plans
required of your company. And detailed requirements for remotely transferring data upon termination.
What do you do if confronted with these contract terms?
If these terms may be relevant and cannot be deleted or modified, find out who pays for what. The cost of a security compliance audit alone could be significant. Try to factor these cyber security costs, including any insurance if it’s even affordable or sufficient, into your pricing.
And will this customer be with you long enough to ensure you can recoup significant security compliance outlays? Many large company contracts have termination for convenience provisions; there is no guarantee of continued business.
Contracts are all about risk allocation. With increased cyber security costs being passed onto vendors, you need to make sure the contract rates and terms make these contracts even doable for your company.
Call or email us
for help with your cyber security contract issues.
Contracts, Checklists, Trade Secrets
NDAs, those pesky confidentiality agreements that your customer wants you to sign, are important. You want your information kept secret and the global company does not want its company secrets disclosed. Before you dismiss NDAs as a nuisance document that must be signed without alteration, you need to know these non disclosure agreements can and should be negotiated. Companies are requiring vendors and consultants (and even prospective employees) to disclose what NDAs they are subject to. You don't want a past NDA to keep you from getting hired whether you are providing technology or goods nor put you at risk for disclosing confidential information. on
Insist on a mutual NDA to avoid one sided provisions. And understand the position of the disclosing party and the recipient party--if you are disclosing, you want as broad protection as possible and if you are the recipient you want as narrow restrictions as possible. Here's a quick guide to negotiating reasonable NDA terms.
1. Make it Mutual
. If a company won’t make a NDA mutual, be forewarned of trouble ahead. As a small or midsized business or consultant, you also have confidential information you need to protect, It’s not just Global Company’s information that needs protecting.
2. Keep Term Short
. One year is reasonable given the speed of technology (exception is if the commercial value of your information exceeds longer than a year). Longer than that, you will likely have to disclose to potential new customers more of the NDAs you are subject to and keep track of your obligations. Ask why they insist on a long term--what's the nature of information that it has to be kept secret for 3 years or forever.
. How broad is the prohibition against disclosing the information to third parties? If it’s highly sensitive, that may be appropriate.
If the NDA says it’s only for purpose of evaluating the deal, determine if that works for you or if you need broader protection. However, if the prohibition against use is overly broad, be careful if you are the recipient of the information and you work in this industry or niche. You may be accused of using information you already had knowledge of before this contract.
5. What’s Confidential Information?
If you are the recipient, you want it defined narrowly. If you are the discloser, you likely want it defined as broadly as possible. One key way to restrict the scope of Confidential Information is to require that it be marked in writing as CONFIDENTIAL. The push back will be that conversations need to be covered. You can provide that information not in tangible written form can be considered Confidential Information if it's identified at time of meeting as confidential, reduced to writing, labeled as confidential and provided to recipient within so many days (Marking Period). The disclosing party should want to mark such information—courts may view failure to mark something as indicative it is not confidential. The receiving party wants such marking so its employees know what information is to be kept confidential.
6. Exclusions from Confidentiality.
It’s common for NDAs to exclude certain categories of information as not deemed to be confidential. Make sure that list includes information already out in the public, known by or disclosed to third parties and information independently developed by the Recipient. Keep track of what you develop in a lab notebook with time, date and subject.
If your work is in the same industry, you have past NDAs with competitors and are about to embark on a new project with a potentially overlapping NDA, get legal help. In such a situation, those lab notebooks and requirements of marking information as confidential within a set time period in your past NDAs will be very helpful to you.
7. Be Wary of Contract Terms that Don’t Belong in NDAs
. For example, customers may sometimes slip in non-solicit and non-compete provisions that don’t belong in a vendor NDA. Delete them and explain to the customer that this NDA is about protecting confidential information not about preventing you from working in the industry.
Clarity on what’s confidential information, your records on past NDAs and your prior development work, and mutual, fair obligations on both sides are critical to successful NDAs. Contact us if you need help with a NDA or reconciling past NDAs with a proposed NDA.
Non Compete,Trade Secrets,IP,Contracts
Non competes pose a significant challenge to every consultant and job hopping technology employee. Are they enforceable? What about the scope of the industry or niche included in the provision? The geographic reach of the non compete? The length of the non compete? The type of employee subject to the non compete?The legal fees incurred in reviewing, revising and/or challenging the non compete provisions? on
Is there an alternative to non competes? Yes, but it takes much more work on the part of the company. Many companies figure if they include a non compete, they have a chance to make it stick and nothing to lose if it doesn't. Here are some alternatives to non competes:
Employers, technology or otherwise, can ensure they have solid confidentiality and invention assignment agreements in place.
Initial interviews and exit interviews can assure that documents and company property are returned and that confidentiality is maintained.
Trade secret programs can secure key information by restricting to those that need to know. Employers should know that their non compete and even trade secret protocols can be undone if they don't protect the information, including from new cyber attacks, social media slips, etc.
We've always said the cheapest and most secure way to protect your IP and your company secrets is through trade secret programs, i.e. keeping your mouth shut and simple agreements/processes to do so. Even the consulting firm McKinsey in Grow Fast or Die Slow
acknowledges keeping quiet is critical to early growth:
"[A key] factor is stealth. Andrew Grove, former CEO of Intel, famously spoke of paranoia as a virtue. Given the pace at which the barriers to entry are falling in this industry, maintaining a low profile while alpha and beta products are developed is vital. In several of our interviews, CEOs discussed the weak intellectual-property protection provided by patents as a prime example of these low barriers."
for more information re setting up a trade secret program for your company or how to suggest non-compete alternatives for your employment or consulting arrangements.
Employment,Contracts,Non Compete, Non Solicit
Severance letter in your hand? Does it state that you shall not compete with the company (non compete) nor solicit customers and/or employees of the company (non solicit)? on
Before you rush to sign this letter to get severance payment, you need to consider whether non competes and non solicits will cost you even more money, hurt you in getting a job and whether they should be in your severance agreement at all. Consider the following tips before you sign that letter.
Typically, an employer sends a letter to a terminated employee which asks the employee to release the company from all claims they can think of and then some. And if the employee signs that letter, she or he has to abide by all the confidentitality, non solicit and non compete covenants (obligations) mentioned in that letter.
Unless employees think they have some claim against the employer (contact atttorney if you do), most sign the letter in a rush to get severance, start looking for a new job and get the severance ordeal behind them.
Not so fast.
Your severance issues may not be over--given the importance of IP and trade secrets, you are likely to have to disclose your non compete and non solicit with your former company to all prospective employers.
1. Don't Sign Severance Letter in a Hurry without Advice and without thought of future consequences. New Employers Now Want to Know Your Non Compete and Non Solicit Agreements and May Want Indemnity from You.
They now want to know whether you are subject to non compete and non solicit provisions with past employers. That severance agreement now matters. And a new employer may even ask you to indemnify, i.e. pick up the new employer's tab for legal fees and damages, for any claims made by the old employer on non compete and non solicit agreements.
2. Ask for Release from Past Employer.
Before you sign a severance letter, ask your employer to release you in writing from any prior non compete or non solicit and/or to strike those provisions from your letter (make sure they state they have the authority to do so in the letter).
3. Reasons for Getting Release.
Why should your employer release you from those terms? The employer doesn't want you to sue and you have to have consideration to sign their release letter terminating you. Point out part of your consideration for releasing the company is the release/removal of non compete and non solicit terms. If the employer says no because they don't want you stealing company trade secrets or customers, remind them that you are still bound by confidentiality obligations listed in the severance letter and/or in earlier agreements and policies. And unless you are an executive or hot shot salesperson, you may want to point out that the non compete and non solicit don't likely apply to you in the first place. Also, be aware those provisions may not clearly define what business you cannot compete against or whom you may not solicit, may include an unreasonable time period and/or too broad a geographic scope--check with a lawyer on these items.
Remember, if you don't ask for a release of your non compete and non solicit, you won't get them. If the company refuses, you need to talk to an attorney. Contact us
if you need further help.
A Business Checklist for those thinking about Selling and A Checklist for those Starting a Business on
Whether you are about to sell or just starting a business you want to sell for big bucks, this quick checklist is for you.
You want to put your business in the best possible condition for the buyer. If there are any potential issues or problems that may concern a buyer and negatively affect the sale, it can result in either a failed deal or a significantly lower price. Far better to get your business in order and maximize the price by undertaking the following actions and analysis:
- Have articles of incorporation and bylaws been filed (for a corporation)? Have articles of organization and operating agreement been filed (for a LLC)? Most states require only that articles be filed.
- Have you filed annual reports with the secretary of state, and are they current?
- Do you have corporate minutes? Are the minutes up to date? If not, update them to ensure that you have minutes of all meetings, completely executed consents, and current copy of articles (charter), bylaws and other governing documents
- Have franchise taxes been paid?
- Have federal, state, county, and local taxes been paid (including income, sales, disability, and unemployment)?
- Do you have shareholder, operating, and/or buy/sell agreements? Where are they, are they completely executed, and are they current?
- Will all founders and key employees be on board for the sale? (After you receive an offer is not the time to find out. Do so before you have the business up for sale.)
- Are employee files current and in compliance with immigration, tax, and other labor laws?
- Are you in compliance with minimum wage, withholding, and other similar laws?
- Are you aware of any litigation, claims, threats, or pending terminations?
- Are key employees and founders satisfied with compensation and/or equity interests?
- Have you prepared and updated all necessary employment agreements, confidentiality agreements, and non-compete agreements with key employees?
- Are you in compliance with anti-discrimination laws and health and safety regulations applicable to the workplace?
- Are you current on worker’s compensation, directors and officers (D&O) liability, and commercial general liability (CGL) insurance premiums?
- Where are your copies of policies? Are there any outstanding claims or issues?
- Do you know when policies are up for renewal, and do you expect any large rate hikes or other potential problems?
- How many do you have? Is that number sufficient? Do you have sufficient business not only in customer numbers but volume?
- Do you have contracts with your customers and vendors? Can you locate them? Are they signed by all parties?
- Are your customer and vendor contracts updated to reflect current pricing? Is documentation regarding your customers and vendors in order?
- Is there likely to be an increase in the cost of raw materials or other goods you use in business?
- Do you rely on one or very few vendors?
- What are your renewal rates? What’s your recurring revenue?
- Do you have complete, executed copies of all contracts with both customers and vendors
- Do you have key terms, termination and renewal dates, and amounts for all such contracts on either some software program or an Excel® spreadsheet?
- Are your customers/contracts assignable? Will a sale of your company trigger the right of a major supplier or customer to terminate its contract with you? What is the status of customers, licensing, or suppliers? Are there any major contract problems, or losses?
- Are there demands, notices, or claims that you are aware of? Any pending lawsuits?
- If so, what is the worst case/best case scenario for each? How much will attorneys’ fees and related expenses run (worst case/best case)?
- Are there any tax notices or liens? Any contested taxes or disputed returns?
- Are there any environmental notices, claims
- Do you have the required permits, licenses, and registrations?
- Will your property pass muster if a lender requires a Phase 1 environmental audit for real estate and other certain activities?
Intellectual Property (IP)
- Do you have a standard assignment agreement with your employees and consultants? Have your inventors/employees and consultants assigned the rights of the IP to the company?
- Do you have good title to your IP, and license for all other IP that you use but do not own?
- What do your IP agreements say regarding transfer to another party? Can they be assigned? (If they are silent as to transferability or have an express anti-transfer provision, you may have to structure deal as a stock purchase or as a reverse triangulation merger.)
- Is there a change of control provision that prohibits any transfer, regardless of the way your transaction is structured?)
- Do you have security measures in place to protect your trade secrets?
- Have you registered your IP with the appropriate authorities (e.g., patents and trademarks with the U.S. PTO)? Are they current? Have you filed the required renewals?
Economic, Financial, and Accounting
- What is the current state of the business? Are your systems and technology processes current or outmoded?
- What is the current state of the industry? Is there consolidation? Obsolescence? A strategic shift of customers?
- What is your company’s competitive position? Are there flanking technologies or service delivery systems that will outmaneuver your company’s product or service?
- What is the state of the economy? Is credit tightening up? Will buyers be able to get financing?
- What are the capital markets doing? What are interest rates doing?
- Is your infrastructure (i.e., financial, IT, risk management, tax, etc.) adequate?
- Do you have appropriate accounting policies? Have your accounting policies changed?
- Are there non-recurring revenues? Deferral of discretionary expenses?
- Have there been reversals of accruals/reserves?
- Do you need to address issues on revenue recognition?
- Are there any restrictions on your company’s cash or securities? Any lender restrictions?
- What is the status of your account receivables?
Even if you do not undertake the above analysis, rest assured that your buyer will. It is better to have eliminated problems and to provide explanations and analysis for outstanding issues to the buyer. Otherwise, your potential buyer will either offer a far lower price (likely further reducing the price with discovery of significant problems) and or walk from the deal.
If you have questions or need further information, please contact us at 303.447.0975.
Purchase Order Series, Contracts
In the fourth and final part of our series, we give you some practical tips on how to work with big companies when it comes to purchase orders.
Here are the top 7 P.O terms to look out for and negotiate/change if at all possible: on
- “All amounts are shown”. You won’t get payment for anything else. Does that amount reflect all your costs? What work and time period does the Purchase Order cover? Usually the terms and conditions prohibit you collecting for shipping, insurance and other costs. Your final number better include all the costs you can pass on.
- Buyer “can withhold payment for any reason whatsoever.” Whoa! Do you really want to agree to that?
- Penalties will be incurred for “failure to deliver at specified locations and times.” Of course, there are no specified times and locations. Get that sorted out before you sign—that impacts your profit.
- If the Purchase order is cancelled or terminated, you must “return advance payments with interest.” What about your startup costs? Interest? In other words, BigCo says “drop what you’re doing, gear up for our job and oh, by the way, we’ve cancelled—give us back our money with interest.”
- “Purchase order terms control over all other documents and agreements; no additional or different terms can be accepted.” (If you can't get the Master Agreement to control, try to confine this Purchase Order only to your present deal).
- Damages and indemnity provisions apply only to Seller, amounts recoverable against Seller are unlimited. Buyer only forks over what they paid under the contract in the event of damages. How one sided can a Buyer be?
- “All work furnished under this Purchase Order becomes the property of Buyer.” In this Age of Intellectual Property, you better give them nothing new that you hope to ever use again.
If you decide to take the plunge with a Purchase Order with such draconian terms, caveat emptor! Watch this account like a hawk!
Do the Big Companies back off terms like these? Surprisingly, yes. However, the closer your goods and services are to commodities, the tougher it is to negotiate. Use the mantra “we Just want this to be mutual, fair and reasonable.”
Purchase Order Series, Contracts
How bad is the Purchase Order? Your business “advocate” at the buyer says there is nothing he or she can do. Now is the time to start looking at the P.O. terms, check the payment record of Buyer and determine if you take the plunge.
How bad is the Purchase Order? Your business “advocate” at the buyer says there is nothing he or she can do. Now is the time to start looking at the P.O. terms, check the payment record of Buyer and determine if you take the plunge. on
Perhaps you think this is unlikely to go to “fist city”, i.e. litigation and the money is just too tempting.
Hold on. You are jumping the gun. It’s not even about suits (lawyers and lawsuits). It’s about getting paid.
What do other vendors say about payment? Check with your cusotmer's suppliers who aren't your competitors (find them through your contacts, trade show directories and magazines, wholesale directories, and even the customer's website under news).
Whether it’s a simple check of Google “bankruptcy, litigation, financial problems, difficulties…” or looking at Experian re payment history, you need to know your financial odds of getting paid, let alone timely payment.
Still ready to take the plunge? Watch this account like a hawk.
Purchase Order Series, Contracts
Procurement says their Purchase Order is the Ten Commandments and nothing will vary it. Yet, you know or suspect there are other agreements that can vary it. Get thee to the business person who champions your deal. Ask them if you really must start with a purchase order.
Procurement says their Purchase Order is the Ten Commandments and nothing will vary it. Yet, you know or suspect there are other agreements that can vary it. on
Get thee to the business person who champions your deal. Ask them if you really must start with a purchase order. If so, ask if there is a master agreement that can override the terms of the purchase order , e.g. a clause that states that in the event of a conflict between the master agreement and the P.O,, the Master Agreement controls. And make sure that Master Agreement provides the protection you need.
Installation of a computer networking system integrating offices around the world is not like selling cocoa beans fresh from the boat. You have to take this out of the realm of a commodity contract.
What if you can’t get off the dock and feel like you are trading cocoa bean commodities? Your interpreter, i.e. your business contact at the buyer, is of no help? Round 3, in the next post, is the knockout round.
Purchase Order Series, Contracts
Recently a client called asking us to quickly review a purchase order—while the amount was small, the next order was to be just under $500,000. And, oh yes, the multinational buyer would not budge on the purchase order –our client just wanted to know what to look out for.
Recently a client called asking us to quickly review a purchase order—while the amount was small, the next order was to be just under $500,000. And, oh yes, the multinational buyer would not budge on the purchase order –our client just wanted to know what to look out for. on
How do you handle a “nonnegotiable” purchase order from a global behemoth? And when that one page, front and back PO, really contains 14 pages of text when printed out at human sized font? (We kid you not).
We have 3 recommendations on how to handle this situation that we’ll explore in several posts.
First, is it really nonnegotiable? Purchasing departments are trained to robotically repeat that there is no negotiation. Behind that robot, there is a person. Don’t go for the jugular and ask them right off the bat—how can this P.O. be nonnegotiable?
Rather, ask them questions about their work, what areas of the company they cover. Ask them what things suppliers or service providers can do to make their life easier. Take any opening you see to talk to them about themselves beyond work. Weather, location, and family are usually easy entrees into relating to them on a personal basis. Only after you have had some human conversation can you start asking about how flexible can they be regarding this purchase order and what workarounds might there be.
If they positively, absolutely insist that no one ever gets paid without this P.O., ask them if there are other agreements that usually accompany or coexist with that P.O. Whether they say no (take that with a grain of salt) or they say yes, your next step is to the business person pushing your project or needing your goods. Prepare for Round 2 in the next post.
It’s a brave new world out there—entrepreneurs need to navigate legal landmines, financing expeditions, and sales swamps. And, oh yes, operate the business, develop and service the products, keep employees happy and make money. How do you determine what you should do yourself, outsource, ignore, risk, and/or focus on when it comes to your business? We hope Colson Quinn’s blog, Lawyers You can Love, will provide you with roadmaps and things to look at on the journey.
It’s a brave new world out there—entrepreneurs need to navigate legal landmines, financing expeditions, and sales swamps. And, oh yes, operate the business, develop and service the products, keep employees happy and make money. How do you determine what you should do yourself, outsource, ignore, risk, and/or focus on when it comes to your business? We hope Colson Quinn’s blog, Lawyers You can Love, will provide you with roadmaps and things to look at on the journey. on
You can’t make the trip without money.
is the next big thing (or is it?). The JOBS Act of 2012 (Title III) allows ordinary people to make small investments in businesses—you can raise up to $1 million in 12 months. The delay in crowdfunding regulations, the SEC’s issuance of proposed rules last fall and the recent critical comments of the Small Business Administration to those SEC rules, make us wonder if equity crowdfunding will indeed take off this year.
Major criticisms of the rules include (1) the requirement of audited financial statements required for companies crowdfunding over $500,000, (2) Ongoing annual disclosures, including financial statements, for as long as the crowdfunding securities are outstanding, (3) the business viability for crowdfunding platforms based on restrictions against platform investment in the crowdfunding companies and concerns of the platform’s liability and obligations for due diligence on those crowdfunding companies and (4) the cost of compliance for crowdfunding companies.
So what should you do to prepare for crowdfunding if the SEC finally enacts rules?
. Is crowdfunding for you? Is your development timeline the same as investors? How much money do you intend to raise? What’s the timeframe? Do you want, let alone have the capacity, to deal with a multitude of investors and the attendant paperwork? Regardless of how the rules come out, you can be sure there will be lots of compliance issues and questions from investors and funding portals.
Get Your Story Straight.
You’ll have to provide some form of informational statement, including details on your company, the equity structure. You will need to include a business plan that describes risks and answers investors’ questions. For example, why should investors care about your product or service? What benefit does the world, let alone the investor, get from this product or service?
. Get a CPA if you don’t have one. You may be required to have a “reviewed financial statement” or an “audited financial statement” (the latter will be significantly more expensive) once the SEC rules are issued. You’ll also need last year’s tax return. At a minimum, you need a financial statement for the operation of your business for leases and loans.
. You are going to need legal help to navigate the SEC rules on equity crowdfunding and to ensure corporate documents support the issuance of the shares. Your choice of corporate entity, typically C, S or LLC, will likely impact your ability to do crowdfunding. Some argue that the S corporation with a limit of 100 shareholders won’t support raising money from a large number of people. Others argue that an LLC isn’t viable given state corporate laws on members and transfer of member interests and the lack of corporate structure, not to mention tax issues. Many argue that a C corporation is the best vehicle for equity crowdfunding given its corporate structure and the familiarity of most people with its governance structure, e.g. directors, shares, etc. There are no easy, quick answers on corporate structure. As with most companies, the more investors the less control you have, the greater the complexity in operations, management and compliance.
There are no easy quick answers on equity crowdfunding (Title III). Some even argue that the JOBS Act has better ways to raise money. http://corporatesecuritieslawyerblog.com/?p=424
Get your corporate house and financials in order and be prepared to look at all options on equity crowdfunding once the SEC rules come out (this year?).