Six Essential Steps to Protect Yourself in New Business Relationships

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Six Essential Steps to Protect Yourself in New Business Relationships

Last week, I promised to share how you can protect yourself when starting a new business relationship—whether it's with a new partner, customer, vendor, or any other business connection. These relationships are the lifeblood of small and family businesses, but they can also be your biggest source of risk if not handled properly.

I've seen too many business owners jump into new relationships with enthusiasm but little preparation, only to find themselves dealing with costly disputes, broken promises, or worse. The good news? Most of these problems are preventable with some upfront planning.

Here are six essential steps to protect yourself from the start:

1. Know Your Counterparty

Before you shake hands or sign anything, do your homework. How long have they been in business? What's their track record? Are they financially stable? A quick Google search, LinkedIn review, and Better Business Bureau check can reveal a lot. For larger deals, consider asking for references from other business partners.

Pay attention to red flags during initial interactions. Do they answer questions directly? Are they transparent about their capabilities? How do they treat your time and commitments? These early signals often predict how the relationship will unfold.

Don't forget to verify they have the authority to make the deal they're proposing.

2. Understand Your Business Deal (And What They Think It Is)

One of the biggest mistakes I see is assuming both parties understand the deal the same way. What seems crystal clear to you might be completely different in their mind.

Take time to clearly define what each party is supposed to deliver, when they're supposed to deliver it, and what constitutes successful completion. Be specific about timelines, quality standards, and payment terms.

Just as important: make sure both parties actually can perform their part of the deal. Do you have the capacity to deliver what you're promising? Do they have the resources to pay you or provide what they've committed to? It's better to discover limitations now than after you've invested time and money.

3. This Isn't a Marriage—All Relationships End

Every business relationship will end eventually. The key is planning for the end at the beginning, when both parties are motivated to be fair and reasonable.

Discuss and document how the relationship will wind down under various scenarios. What happens if one party wants to exit early? How will you handle the transition of responsibilities? What about confidential information or intellectual property?

Think of it like a business prenup. Having clear exit procedures protects both parties and often prevents minor disagreements from becoming major battles.

4. Plan for When Things Go Wrong

Hope for the best, but plan for the worst. Build flexibility into your agreements from the start. Include provisions for delays, partial performance, and changed circumstances. Define what constitutes a material breach and what remedies are available.

Put protections in place so you're alerted quickly when problems arise. This could mean controls to prevent fraud, like requiring dual signatures on large expenditures, or operational safeguards like reviewing a sample before approving a full production run.

The key is catching problems early when they're still manageable. A quality issue discovered on the first 100 units is much easier to fix than discovering it after 10,000 units have been shipped.

5. Get It in Writing

If it's not in writing, it doesn't exist. Handshake deals and verbal agreements might feel more personal, but they're incredibly expensive to enforce when things go wrong.

Here's the harsh reality: when disputes arise over oral contracts, you'll find yourself paying lawyers to argue about who said what, when they said it, and what they really meant. I've seen small business owners spend tens of thousands of dollars in legal fees trying to enforce agreements that could have been documented in a simple email.

Even if you eventually win, the cost of proving an oral agreement often exceeds the value of what you're trying to recover.

This doesn't mean you need a 50-page contract for every deal. A simple email confirming key terms might be sufficient for smaller arrangements. The complexity of your documentation should match the complexity and risk of the deal.

6. Schedule Regular Check-ins

Business relationships need maintenance. Don't wait until problems arise to assess how things are going.

These check-ins don't need to be formal meetings with the other party—sometimes the most important check-in is the one you have with yourself. Set regular calendar reminders to honestly assess whether you're getting what you expected. Are deliverables meeting your standards? Are payments coming on time? Is communication effective?

This internal evaluation is crucial because it's easy to get caught up in the day-to-day and miss warning signs. Keep notes about your assessments and any concerns that arise. This documentation helps you spot trends and make informed decisions about whether to continue, modify, or end the relationship.

Your Foundation for Success

These six steps might seem like a lot of work upfront, but they're investments in your business's long-term success and peace of mind. The time you spend protecting yourself at the beginning of a relationship is nothing compared to the time, money, and stress you'll save by avoiding problems later.

For more complex deals or when significant risks are involved, consider bringing in a lawyer early in the process—not just to document the final agreement, but to help you think through potential problems and structure the deal to minimize risk. Sometimes an hour of legal consultation upfront can prevent thousands in problems later.

Good business relationships are built on trust, but trust should be supported by clear agreements and good practices. The businesses that thrive are the ones that combine the personal touch of relationship-building with the professionalism of proper documentation and planning. If you need help, please schedule a meeting with me.

Coming Next Week

Next week, we'll shift gears and talk about the basics of starting a new business. I'll share how planning at the beginning can make your life easier as you grow, including the fundamental decisions that will shape your business for years to come.

Until then, take a look at your current business relationships. Are there any that could benefit from better documentation or clearer agreements? It's never too late to strengthen the foundation of your business partnerships.