Beware! Read and Review Before You Sign a Contract

Whether you’re a small business owner or an executive of a large operation, you are equally tasked with navigating the day-to-day realities of your organization, while striving to plan for long-term success. Strategic planning helps shape day-to-day decisions as well as organizational direction, but there are inevitably future events that you cannot foresee or predict.

Sometimes in an effort to move the business forward, you are pressed to make swift, hard decisions, which may result in entering into an agreement (or “contract”) without complete information. These contracts could be with a customer, an employee, a bank, a vendor, a fellow owner or other business relationship. Over time, contracts have become increasingly lengthy and more complex, and legal rulings have necessitated more liability protection for both parties entering the agreement.

As public accountants and financial consultants, we relish the opportunity to review contracts for our clients before they sign on the dotted line. Too often, though, companies sign contracts without a thorough review and miss out on proactively addressing issues that could be avoided. Contract signatories will often sign an agreement without full analysis due to time restraints, risk of loss, risk of repercussions from pushing back, or simply not knowing that they have the ability to push back.

The Benefit of a Professional Contract Review

With all that said, the question becomes, what benefits are there to having your accountant review an important contract before it is signed?

  • Assurance of Contract Viability. A more thorough review can help ensure covenants or other quantifiable goals identified within the contact are achievable.
  • Tax impact. Often times, the way a contract is structured will have tax implications. As we review, we can recommend changes to make the contract more beneficial for you or bring to light areas that you may need to reconsider.
  • Forecasting. If the contract involves future cash flows, we can work with you to develop a forecast for how the terms of the contract will impact your business.

Depending on the complexity of the contract, you also need to have an attorney review, because they will have their own areas to look at, including avoiding personal liability when possible.

Walz Group is here to help review or answer questions you may have about the content of a contract.

This installment is brought to you by Ben Ritenour, CPA, CGMA. Ben is a Director in the Walz Group’s Assurance Division. His broad range of expertise supplements the firm’s traditional offerings. Not only does he oversee compilation and review engagements, but his hands-on experience in private industry allows him to perform a variety of consultative services for clients, including outsourced CFO services and bank examination procedures.

Ben is a member of the American Institute of Certified Public Accountants (AICPA).

Connect with Ben on LinkedIn or contact Walz Group to get in touch.