Contracts are difficult things and quite frankly, pretty boring things for startup founders that are wanting to build an amazing product to wow their customers and solve a real problem. But, they are an extremely important part of doing business and making money. If you’re going to build a business that lasts and scales you’ll need to pay attention to your sales contracts. An effective way to do this is by having a contract review checklist and following these tips for effective contract review.
What should I have in my review checklist?
As a software-as-a-service startup company, it is important to have a checklist to review contracts before signing them. A thorough contract review can help you identify potential risks, negotiate better terms, and ensure that the contract aligns with your business goals. It’s important as a founder, head of sales, finance, or operations to guide your legal team to follow a checklist and raise things for your review when and where you need them. It’s also important to empower them to understand when things need to be raised with you otherwise you’ll be bogged down with every single change in your contract negotiations. Here is a contract review checklist for a software-as-a-service startup company to use in their contract management:
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Identify the Parties Involved: Review the contract to ensure that all parties involved are accurately identified, including names, addresses, and contact information, having a page for your sales and legal teams to access this information will help cut down on repeated questions, keep it updated with names of your business entities and bank account details.
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Check for Term and Termination: Determine the contract’s start and end date, and review the conditions under which either party may terminate the contract, including breach of terms, notice requirements, and penalties for early termination. You should have contract tracking in place for these details so you can track them as you go and it’s easiest to do this with contract tracking software.
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Understand SaaS Contract Payment Terms: Review the payment terms, including the amount, frequency, and method of payment. Confirm that the payment terms align with your company’s financial goals and capabilities. This should be something you stay on top of and have escalation for approval on. There are circumstances where agreeing to ninety-day payment terms makes sense but the decision to do this should escalated to a decision-maker who understands the business ramifications of this
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Review Contract Intellectual Property Rights: Confirm that the contract accurately outlines the intellectual property rights for both parties, including ownership of software and any modifications made to it during the contract. This is particularly important when your customers are uploading any type of intellectual property to your platform.
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Check for Confidentiality and Non-Disclosure: Determine whether the contract includes provisions related to confidentiality and non-disclosure of proprietary information. Confirm that these provisions align with your company’s policies and objectives or check if they align with any non-disclosure agreement that was previously in place.
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Review Contract Liability and Indemnification: Determine the scope of liability and indemnification, including potential risks and damages, and ensure that the contract aligns with your company’s risk management strategies. Understanding how to negotiate liability clauses in your contracts should be one of the core skills you develop early on.
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Identify Warranties and Representations: Review any warranties or representations made in the contract, including guarantees related to performance, quality, and service level agreements. Confirm that these warranties align with your company’s expectations and capabilities.
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Check for Governing Law and Jurisdiction: Determine the governing law and jurisdiction outlined in the contract, and ensure that these align with your company’s legal requirements and preferences.
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Understand Limitations of Liability: Review the limitations of liability outlined in the contract, including exclusions, caps, and indemnification requirements. Confirm that these align with your company’s risk management strategies and financial capabilities.
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Check for Change Control and Modification: Determine the conditions under which either party may change or modify the contract, and confirm that these align with your company’s objectives and policies.
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Review the Entirety of the Agreement: Read through the entire agreement, including any addendums, exhibits, or schedules, to ensure that all terms and conditions are consistent and complete.
What are some good tips for better contract review?
As a company selling software as a service (SaaS) products, effective contract review is crucial to protecting your business and ensuring that your agreements align with your company’s goals and objectives. Here are some tips for effective contract review:
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Start with a Clear Understanding of Your Business Objectives
Before diving into a contract review, it’s important to start with a clear understanding of your company’s objectives and priorities. This will help you to identify potential risks and opportunities for negotiation, as well as ensure that the contract aligns with your company’s long-term goals.
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Identify Key Terms and Clauses
Once you have a clear understanding of your business objectives, identify the key terms and clauses in the contract. This may include payment terms, termination clauses, intellectual property rights, confidentiality and non-disclosure provisions, liability and indemnification, warranties and representations, governing law and jurisdiction, change control, and more.
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Consider the Contract from Multiple Perspectives
When reviewing a contract, consider it from multiple perspectives, including legal, financial, operational, and strategic. This will help you to identify potential risks and opportunities for negotiation, as well as ensure that the contract aligns with your company’s overall business strategy.
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Review the Contract Thoroughly
Take the time to review the contract thoroughly, paying close attention to the key terms and clauses identified earlier. This may involve reading through the entire agreement, including any addendums, exhibits, or schedules.
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Find a lawyer with SaaS expertise
If you are not a legal expert, it’s important to seek legal counsel when reviewing a contract. A lawyer can help you identify potential risks and opportunities for negotiation, as well as ensure that the contract aligns with your company’s legal requirements and preferences.
If any terms or clauses in the contract are not aligned with your company’s objectives or that pose potential risks, negotiate them. This may involve proposing alternative language or terms, or requesting that certain provisions be removed altogether.
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Confirm Agreement in Writing
Once the terms of the contract have been agreed upon, it’s important to confirm the agreement in writing. This may involve signing the contract and providing any necessary documentation or other information.
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Monitor the Contract
After the contract has been signed, it’s important to monitor it to ensure that all parties are fulfilling their obligations. This may involve tracking payments, reviewing performance metrics, or ensuring that all parties are complying with confidentiality and non-disclosure provisions.
Effective contract review is essential for any company selling a SaaS product. By starting with a clear understanding of your business objectives, identifying key terms and clauses, considering the contract from multiple perspectives, seeking legal counsel, negotiating the terms, confirming the agreement in writing, and monitoring the contract, you can ensure that your contracts align with your company’s goals and objectives, and protect your business from potential risks.
