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Importance of contracts for SMME’s

by | Jun 29, 2021 | Personal Finance

Brought on by necessity, rather than choice – 2020 gave rise to many entrepreneurs and small businesses. Many took huge risks in setting up their small and medium businesses – and have also had to look at means of sustaining them.

Something that plays a vitally important role in the success and longevity of an SMME, is contracts.

A contract can come in many forms. It is essentially an agreement between the business and another entity in which both parties accept terms and conditions that they are obligated to uphold. It is best to have an electronic and/or written contract, as it is easy to refer to when a dispute arises.

TERMS AND CONDITIONS of a contract

The terms and conditions laid out in a contract, form the basis of the agreement between parties.

BREACH of contract

When one party violates the terms and conditions as agreed upon in the contract, they can be sued for breach of contract. It is very difficult to sue for breach of contract if there was only a verbal agreement or “gentleman’s handshake” on something. It is always best to have a physical or electronic document to refer to.

SCOPE of the contract

Contracts should be kept simple, but should contain the following:

  • Clearly marked deliverables
  • General timeline
  • Specific timelines with due dates for milestones
  • Non disclosure and non-compete clauses
  • Payment amount and terms
  • Circumstances under which the contract can be terminated
  • How a breach of contract will be dealt with

 

TYPES OF CONTRACTS most commonly used by SMME’s

Here are some key contracts used by SMME’s. If done and utilized correctly, these types of contracts will significantly aid the success of a business

EMPLOYMENT contracts

An employment contract regulates the terms and conditions of employment between the employer and the employee

Here, are the essentials required for a basic employment contract in South Africa:

  • Full names and addresses of employer and employee
  • Job title and description of work that employee is expected to perform
  • Place of work from which duties will be performed
  • Employees days and hours of work
  • Remuneration
  • Rate of calculating remuneration
  • Rate for overtime
  • Frequency of remuneration
  • Salary/ Wage deductions
  • Probationary periods, notice periods or contract termination date
  • Non-disclosure clause
  • List of documents / requirements by the employer from the employee eg: Identity document, bank account details etc

 

CONFIDENTIALITY contracts

A confidentiality contract is also called a Non-Disclosure Agreement (NDA)

Having a NDA in place which prevents employees, service providers and other parties from stealing and/or sharing proprietary information, is vitally important in this highly competitive age

 An NDA will contain:

  • the recipients obligations in terms of confidentiality
  • what is excluded from such confidentiality (ie things which are public already)
  • how long the confidentiality lasts for
  • consequences of breach of confidentiality

 

SERVICE LEVEL AGREEMENTS

Commonly referred to as an SLA. It is a contract between the business and a service provider that details the expectations and obligations of both parties

An SLA will generally contain the following:

  • Measurable guidelines
  • Clear timeframes
  • Detailed description of services
  • Duties and responsibilities of both parties
  • protocol for adjusting metrics
  • penalties for breach of SLA

 

LEASE AGREEMENTS

If you are renting premises for the operation of your business you will have a lease agreement in place with the landlord or rental agent.

Though most lease agreements have “standard terms and conditions”, you must ensure that your lease agreement spells out the obligations of the lessor (landlord) and the lessee (you) and suits your current, and possibly future needs.

 

LOAN AGREEMENTS

Most businesses enter into loan agreements with banks and lenders and simply sign on the dotted line.

A business should know the following details of any loan they enter into:

  • Total cost of the loan
  • The term of the loan
  • The interest rate of the loan
  • The rights to repay the loan without penalties
  • The flexibility of the loan
  • Insurance on the loan
  • Payment amount due
  • Date of payment due

Contrary to what many believe, small business owners who have proof of a regular income, can also apply for debt review. Trying to run a business, while worrying about your debt, and harassment  by debt collectors – is not an ideal  situation. Let NDA help you take control of your finances and eradicate your debt. To find out if you qualify, fill out our contact form and we will be in touch shortly.

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