Before You Sign: A Simple Contract Review and Checklist for SMBs

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1. Feature: Before You Sign: A Simple Contract Review and Checklist for SMBs (4 min read)

2. From the Archive: The LLC Owner’s 2025 Problem-Solver. Read it here.

3. Dear TCoL: Transferring an LLC Ownership Interest to my Revocable Trust

Take time this Sunday to set yourself up for the week ahead.

-TCoL

Missed our last feature article? The Wild West LLC Standoff Between Wyoming and Nevada...And Where Texas and Florida Stand. Read it here.

You should review every agreement you sign, no matter who it’s with. That includes long-time vendors, professionals you’ve worked with for years (engineers, accountants, lawyers, etc.), and even simple proposals that pass as “contracts” (not advisable, but common). Getting into this habit protects your profits and helps avoid disputes.

One of the costliest mistakes owners make today? Signing contracts that quietly strip away your rights, especially by limiting the other side’s liability to whatever you paid them. That means if their mistake costs you $50,000 but you paid them $5,000, you eat the loss. Most business owners never notice that clause until it’s too late.

This article covers key contract points and provides you with a helpful contract review checklist.

Catch Automatic Traps

Start by reviewing dates and terms that can lock you in:

• Auto-renewals: Many agreements roll over for another full term unless you give notice, often 30–90 days ahead.

• Price escalators: Some vendors add annual increases tied to “market changes” or other escalators.

• Early termination penalties: Short-term deals sometimes carry long penalties if you exit early.

Mark renewal dates and set calendar reminders so you’re never caught off guard.

Flag Risky Obligations

Scan for terms that expose your business or drain your cash flow:

• Liability limitations: The vendor caps their responsibility to what you paid them. Push back if possible.

• Personal guarantees: These survive even if your business closes. Renegotiate or remove them at renewal.

• Indemnity clauses: Watch for language that impossible to understand, one-sided, or causes you to pay for their legal costs, even if you did nothing wrong. Good indemnity clauses should apply mutually to both parties.

• Intellectual property (IP) ownership: Ensure you retain rights to anything you create (or that your vendor creates while working on you account) unless you clearly agreed otherwise.

• Payment terms: Make sure they fit your business. “Due on receipt,” “2/10 net 30,” or other terms can squeeze your cash flow if they don’t align with when you collect revenue. Some terms, like early pay discounts, are only good if you meet the deadline (2/10 net 30: gives you a 2% discount if you pay by the 1oth). Negotiate for terms that work for both sides. Calendar deadlines for critical payment dates.

• Payment methods: 3% for credit card payments but no charge for debit cards or ACH? When you set up your vendor in accounting, take the time to also set up the least-costly method of payment.

Highlight anything you don’t fully understand for a closer look and discussion with the vendor.

Look for Negotiation Opportunities

Once you spot the traps, decide where you can push for better terms:

• Outdated pricing: Long-time vendors often keep you at old rates. Ask for a review if they are now cheaper (mobile phone plans for businesses are notorious for getting cheaper over time). Keep quiet if they’ve gone up and haven’t noticed you still have old rates.

• Unnecessary services: Cancel unused add-ons and non-essential service contracts.

• Payment flexibility: Request terms that better match your cash flow, such as stretching from “due on receipt” to net-15 or net-30. Don’t be shy about asking for changes to payment due dates that better match your cash flow.

• Shorter commitments: Move from multi-year to annual or quarterly to keep leverage.

A simple note works:
“We’re reviewing contracts before renewal and need to revisit a few terms, including pricing and payment schedules. Can we discuss updates at your earliest convenience?”

Contact a Lawyer

Get professional help if you find:

1. Liability caps or indemnity clauses you don’t fully understand.

2. Personal guarantees on accounts that expose you beyond the business.

3. High-value or long-term contracts ($50k+ annually) with complex obligations.

4. Any poorly worded contract terms that you can’t understand. If the language feels confusing or inconsistent, have a lawyer explain it before you sign or renew. Many vendor contracts are horribly written.

Lawyers can often negotiate changes before renewal but only if you spot the issue and ask for their review and help.

Contract Reviews = Big Returns

Even trusted vendors and professionals can include confusing or unfavorable terms in their agreements. This review won’t catch everything, but it will catch enough to help you understand a contract, protect you from most issues, and give you leverage to negotiate before you’re locked in. Some vendors even appreciate problems with their contracts being pointed out.

✅ Quick Contract Review Checklist

Use this checklist once a year or before renewing or signing any contract. Mark “✓” as you go.

✓ Auto-renewal dates noted and calendar reminders set
✓ Price escalators reviewed and understood
✓ Early termination penalties checked
✓ Liability limitation clauses flagged
✓ Personal guarantees identified and reviewed
✓ Indemnity clauses flagged for legal review if unclear
✓ Intellectual property ownership confirmed
✓ Payment terms reviewed for cash-flow fit (due on receipt, net-30, etc.)
✓ When setting up a vendor, set up the least-costly method of payment offered
✓ Negotiation opportunities listed (pricing, services, payment flexibility)
✓ High-value or long-term contracts flagged for legal review
✓ Poorly worded or unclear contracts flagged for legal review
✓ All renewal dates entered into your calendar

Print and keep this with your contracts folder.

Use this checklist to help avoid disagreements, costly lawsuits, and, most importantly, to protect and preserve your LLC’s hard-earned profits.

Dear TCoL: Transferring an LLC Ownership Interest to my Revocable Trust

Question: I am planning on transferring my member interest in a LLC that I own part of to my new revocable trust. How do I start the process and what do I need to be careful about?

Answer: Transferring your LLC interest to a revocable trust is usually straightforward, if you first deal with the details.

Check Your Operating Agreement

Since you mentioned that you are a part owner, begin by reading your LLC’s operating agreement. Most require a member vote before a member interest can be assigned. Get that approval in a company resolution, signed by your partners, and keep a copy with your estate planning records. This protects you if questions arise later. If you don’t have an operating agreement, read our article, Your LLC Is Missing Its Most Important Document.

Watch for Entitlement Classifications

If your LLC holds a special classification like, SBA, 8(a), women-owned, service-disabled veteran, or similar, pause before assigning your membership. Those designations can take years to secure, and agencies often have strict rules about ownership changes. Confirm the transfer won’t jeopardize your status.

Review Client Contracts

Some customer or vendor contracts require notice if the LLC’s ownership changes, even when you remain in control. A quick contract review now avoids surprises later.

Update Bank and Brokerage Accounts

Banks and brokerage firms generally don’t object when you move your ownership interest to a trust, especially if you’re the sole trustee. Still, check loan, credit, and deposit agreements. Many institutions have simple e-forms to update their records.

Work With Your Lawyer

Estate planning lawyers are used to this process and can help you avoid missteps. Ask yours to handle the transfer paperwork or at least review it before you sign.

Handled carefully, assignments to your trust are a smart step to protect your estate and minimize taxes.

Read our past article for a deeper dive into each step and what to watch for: How To Assign Your LLC Ownership Interest To Your Revocable Trust.

Have an interesting business question and need a free bit of advice? Send your question to [email protected]. No confidential info, please!