Contracts;

Tweet

It may be inconvenient, or expensive, to put agreements into precise contracts, but do it anyway. Vague contracts can come back to haunt you, plunging your company into major legal wrangles down the road. They can also reduce the value of your business.

So says Randall Wise, the man responsible for evaluating acquisition candidates for Lotus Development Corp. Time and again, he says, deals have to be killed or prices lowered because the acquiree has vague contracts. "It costs money to clean things up," he notes, and that cost is reflected in the acquirer's final valuation.

Some of the problems that Wise often sees in the companies he looks at:

* oral agreements that have never been reduced to writing;

* lack of a termination date;

* unspecified commitments to provide service for a product; and

* failure to specify what happens when the contract is breached.

If you can't afford the legal expense of drafting every agreement, have a lawyer develop boilerplate contract language. "The first three times you use it, you will see how your customers react," Wise says. After working with the lawyer to revise the language, you should be able to go it alone.