Using Contracts the Right Way

Any food services business owner can verify that running a restaurant, bar, or catering operation involves a lot of moving parts. From partners and employees to suppliers and customers, most of your professional relationships revolve around giving and taking.

In the business world, these interactions can get messy if you don't spell out the specifics in writing. That's why contracts are essential to operating your business smoothly. Depending on how your business runs, you may need to use contracts for…

  • Leased equipment. If you don't own your kitchen equipment, such as ovens, stoves, and refrigeration units, you likely depend on a lease or payment plan contracts.
  • Suppliers. Food and alcohol purchases are the bread and butter of food services businesses. This means owners have to negotiate supplies, payment terms, and delivery dates in their contracts. There are other suppliers to consider, too. For example, you need a contract with a credit card processor to accept credit cards at your establishment – a complicated agreement that entails various rates, fees, and pricing models. You may also have a contract with a temp agency to keep your business adequately staffed, especially because the turnover rate for food services employees tends to be high.
  • Cleaning services. You may contract with laundry services if your fine dining establishment uses tablecloths, linen napkins, chef coats, and uniforms.
  • Leased commercial property. Unless you own your commercial property, you likely have a leasing agreement with your landlord.
  • Marketing services. Though you may not outsource your marketing needs right away, chances are that when your food business grows, you'll need some help. When that happens, you may hire a marketing firm or contractor to help develop advertising and public relations materials. In turn, you'll need the appropriate contracts to define expectations, project milestones, and payments.
  • Partnership and shareholder agreements. These contracts detail the obligations other business partners or shareholders have to the company and the conditions under which their shares can be bought or sold. Every food services business owner should draw these up to help navigate potentially sticky situations down the road.

Now that we've established some of the scenarios for which you'll need contracts, let's look at some helpful tips for creating your own contracts.

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Food Services Businesses: 9 Tips for Creating Contracts

Food Services Businesses: 9 Tips for Creating Contracts

  1. Get everything in writing. Any business agreement should be put in writing, no matter how informal your relationship with the other party may be. Oral agreements can be legally binding, but they're often difficult to prove or uphold in court. By contrast, a written agreement can clearly define each party's obligations and serve as tangible proof of the agreement.
  2. Cut the legalese. You don't need a to throw around legal jargon to ensure your contract holds water in court. Opt for clarity instead. Keep your sentences short and use numbered paragraph headings that announce the topic for each section.
  3. Work with the person in charge. Only make deals with the person who has the authority to bind their business to the obligation. You don't want to waste time trying to negotiate with someone who has to get the OK from their supervisor.
  4. Correctly name each party. If you are striking a deal with a business, you will need to identify the business by its legal name. Sometimes, small-business owners accidentally use the names of the individual people signing the contract. However, if your agreement is with an LLC or corporation, that is the entity you should name in your contract (Inc. or LLC suffix included!).
  5. Spell out all of the details. The body of the agreement should spell out the rights and obligations of each party in detail. If you leave something out, be sure to include a written and signed amendment to the contract. Generally, you'll want your contract to include…
    • Each party's contact information.
    • Project description or each party's obligations.
    • Project milestones, deadlines, or delivery dates.
    • Rates, fees, payment schedules, and payment methods.
    • Cancellation clauses and revisions.
    • Both parties' signatures (note: a contract is not legally binding with them!).
  6. Create a termination clause. Give yourself and the other party a way to end the business relationship if things aren't working. For example, if your supplier is consistently late on deliveries, it could result in losses for your restaurant. For a supplier contract, it may make sense to include a termination clause that gives you the power to dissolve the contract if the other party misses a certain number of delivery dates.
  7. Include steps for resolving disputes. Even good working relationships can run into trouble, so it's important that your contract include action steps for settling disagreements. Typically, settling a dispute through arbitration or mediation is cheaper and less time-consuming than taking the issue to court, so including a clause calling for non-court mediation in your contracts can save you time and money. Also, if you're working with distributors or suppliers across state lines, pick one state's laws to govern the terms of your contract and resolve disputes.
  8. Include a confidentiality agreement. Protect your business's sensitive information by creating a confidentiality clause. In short, each party will agree to keep strictly confidential any business information it learns while bound by the contract.
  9. Have a lawyer review your work. There are resources online that can guide you through the process of creating your own contracts, but to make sure they hold muster in court, consider hiring an attorney to review them before using them in business. Even if you have the attorney review a basic template that you later adapt, the investment in his or her time can save you a lot of headaches down the road, should you ever find yourself in court.

Now that you have some pointers to help you write your own contracts, let's review some common contract terms you may encounter in contracts other parties present to you.

Common Contract Terms Every Food Services Business Owner Should Know

Common Contract Terms Every Food Services Business Owner Should Know

Don't let contract legalese keep you from understanding what you're agreeing to. Here are some typical terms you may encounter when hammering out negotiations:

  • Acceptance: When you agree to the exact terms of the offer. If you change even one term of the offer, it is a counteroffer.
  • Arbitration clauses: Provisions for settling contractual disputes through arbitration rather than court hearings.
  • Boilerplate: A term for standard contract clauses, such as arbitration clauses, entire agreement clauses, and force majeure clauses.
  • Breach: When one party strays from the terms of their binding contract. In many cases, a contract breach may nullify other terms of the contract.
  • Conditions: Provisions that detail the contract's response to particular occurrences.
  • Consideration: A thing of value that is exchanged for the offer.
  • Damages: Monetary compensation awarded for a breach of contract.
  • Entire Agreement: A clause that states the contract represents the full and final agreement between the contracting entities.
  • Force Majeure: A common clause in contracts that essentially frees one or both parties from liability when an unforeseeable event prevents one or both parties from performing their contractual obligations.
  • Guaranty: An agreement that one party will guarantee the payment or fulfillment of another's debts or obligations.
  • Offer: A promise to carry out the terms of the proposed contract in exchange for the consideration (i.e., the thing of value that is on the bargaining table).
  • Recitals: Essentially, an introduction to the contract. These paragraphs describe the nature of the contract and why each party has entered into the agreement.
Sample Contract Resources for Owners of Food Services Businesses

Sample Contract Resources for Owners of Food Services Businesses

You don't have to start from scratch to create the basic contracts you may need when first launching or growing your food services business. Check out these free contract templates to help you get started:

Additional Resources for Creating Contracts

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