“We’ve always trusted each other.” A sentence that could cost you your company. Why “gentlemen’s agreements” stop being enough at a certain stage.
In the early stages of business, speed is everything. An order is confirmed over the phone, the supplier is a friend from school, and the lease for the first office is downloaded from the internet "just to have something." And it works. The business grows, invoices get paid, and trust is the glue holding it all together.
However, as the company grows, so does the risk. What worked at a turnover of two million is a gamble at fifty million.
When does the breaking point occur? Usually, when people, market conditions, or ownership structures change. And unfortunately, the sentence "But we've always trusted each other" does not hold up as evidence in court.
The Problem with Informal Agreements Imagine this: For years, you’ve been sourcing a key raw material from a supplier with whom you have no framework agreement. You’ve always just called, and they delivered. But then the supplier sells the company, passes away, or enters insolvency.
The new owner (or insolvency administrator) doesn't know about your "gentleman's agreement."
They immediately raise prices by 20%.
They shorten the invoice maturity.
Or they stop deliveries overnight.
You have nothing in hand. No price guarantee, no notice period, no contractual penalty for non-delivery. Your business grinds to a halt, and only now do you realize how expensive the absence of "that useless paperwork" truly was.
The Trap of Internet Templates The other extreme is contracts downloaded from the internet. These are often even more dangerous than no contract at all because they create a false sense of security. A template contract doesn't address your specifics:
Does it limit liability for damages? (What if the supplier ruins your production?)
Does it handle the transfer of intellectual property rights? (Does the code written by that freelancer actually belong to you?)
Does it include an arbitration clause, or will you spend years litigating in an overburdened state court?
If your turnover is in the tens of millions, you cannot build your legal security on a document created via "Ctrl+C, Ctrl+V."
Legal Hygiene: If it’s not in writing, it (in business) doesn't exist Professionalizing your contractual documentation doesn't mean you stop trusting people. It means you "trust, but verify." A quality contract is like a good fence—it makes good neighbors. It clearly defines the boundaries: what happens if a payment is late, if goods are defective, or if one party wants to terminate the cooperation.
Where to start the cleanup? You don't need to revise every coffee receipt. Focus on the Pareto 80/20 rule:
Key Suppliers and Customers: Do you have formal agreements for the relationships that represent 80% of your turnover?
Intellectual Property: Are the rights to your brand, logo, and software secured?
General Terms and Conditions (GTC): Are they up-to-date and protective, or just text on a website that no one reads?
Investing in a Good Night's Sleep Revising key contracts is not an act of bureaucracy; it is building company value. When you eventually negotiate with an investor or a bank for a loan, "order in the papers" (legal due diligence) will be one of the main factors deciding your company's price or your interest rate.
Don't wait until a "gentleman's agreement" stops being enough. At Svoboda Koubková, we help you set up contractual relationships so they are fair, enforceable, and something you can lean on when a crisis hits.