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Why contracts are so important

Part II 

{By: Marla Green} When we left last time, I had just told you that I am the proud owner of Educatrix Advanced Practice Seminars, LLC. We are a continuing education (CE) company that caters primarily to Nurse Practitioners; however, we also provide category II CE to Physician Assistants and CE to Registered Nurses. 

The company that I was going to purchase, from here on we will refer to them as CE USA, and I agreed to co-sponsor the next conference together. It was to be their last event and my introduction event. Additionally, we agreed to split the profits. CE USA agreed to mentor me for at least the next 2 years. During those years, I was to pay them an agreed upon amount after each conference as payment for their business. 

Everything sounds amazing right? I thought so as well. Which is why I was stoked about the purchase. My first of many mistakes was not insisting on a formal contract/agreement. When we agreed on the terms, the sellers sent them to my email address, instead of drafting a formal agreement. 

When purchasing a business, why is a formal contract so important? Formal written contracts have things spelled out so there is no confusion between parties. Which leads me to my next point. . .before you sign any contract, have an attorney look it over so that you are absolutely sure of what you are signing. 

Clear contracts are not only good for making sure that both parties are of the same mind, it also helps when it comes to funding. Lenders want proof that you are purchasing a viable business. An email is not sufficient. In order to get business credit for the existing business, and not have to start from scratch, a contract and the companies’ previous tax returns are necessary. Why tax returns? To show proof that the business was profitable prior to you purchasing it.

We will stop here for now. Next time we will delve into the disagreement that not having a contract caused and the ramifications from that. Till next time. Be encouraged!