Contracts underpin almost every significant business relationship — with suppliers, clients, landlords, employees, and business partners. Yet many small business owners sign contracts without fully reading them, or rely on a handshake and goodwill where a written agreement is needed. When something goes wrong, the contract is what everyone turns to first. Understanding the basics of what to look for can save you considerable time, money, and stress down the track.

Why a verbal agreement is rarely enough

Verbal agreements are legally enforceable in many circumstances, but they are extraordinarily difficult to prove. When two parties disagree about what was agreed — the price, the scope, the timeframes, the remedy if something goes wrong — a verbal agreement quickly becomes a dispute of competing recollections. A written contract, signed by both parties, removes that ambiguity. It does not eliminate disputes, but it provides a clear reference point for resolving them without the matter escalating into litigation.

Key clauses to look for

In any commercial contract, pay close attention to the scope of work or services — what exactly is being delivered, and what is explicitly excluded. Look at the payment terms: when is payment due, what happens if it is late, and are there any conditions that must be met before payment is triggered? Check the termination clauses carefully — under what circumstances can either party end the contract, and how much notice is required? And review any liability or indemnity clauses, which can transfer significant financial risk between the parties in ways that are easy to overlook.

For contracts with suppliers, look at price variation and escalation clauses — does the supplier have the right to increase prices, and if so, on what terms and with how much notice? For client contracts, check whether the agreement includes an intellectual property clause that appropriately assigns ownership of the work you produce.

Red flags that should make you pause

Be cautious about contracts that are excessively one-sided — where all the obligations and risks sit with you, and the other party has very few. Watch for automatic renewal clauses that roll the contract over for another year unless you take specific action before a deadline. Exclusivity clauses that prevent you from working with other clients or suppliers deserve careful thought before accepting. And unlimited liability clauses — where one party accepts full financial responsibility for any loss or damage regardless of the circumstances — should almost always be negotiated before signing.

When to get legal advice

Not every contract requires a lawyer to review. For low-value, straightforward agreements, reading it carefully yourself may be sufficient. But for leases, partnership agreements, contracts that involve significant money or long-term commitments, and any agreement you are uncertain about, investing in a legal review upfront is almost always cheaper than resolving a dispute later. A business lawyer can identify the key risks in a contract relatively quickly. It is also worth keeping copies of all signed contracts in an organised, accessible location — either a physical folder or a cloud storage system — so you can locate them quickly if a question or dispute arises.

Good contract management is not exciting, but it is one of the quieter signs of a well-run business.