As a small business owner, you wear many hats—from the visionary leader to the head of operations and everything in between. You may find yourself grappling with limited manpower, time constraints, and a constant battle to optimize every resource at your disposal.
While contracts are essential for your business's growth and success, managing them can be a manual, time-consuming, and resource-draining task.
To manage contracts, small businesses like yours can leverage innovative tools and some best practices. These will help you streamline processes while maximizing efficiency and freeing up time and resources to fuel your small business's growth.
Why is contract management important for small businesses?
One of the primary reasons contract management is crucial for small businesses is that it eliminates manual and time-consuming processes.
Without a streamlined approach in place, employees at small businesses often find themselves grappling with laborious tasks such as drafting contracts, mailing them for signatures, and meticulously tracking every deal that transpires.
Small businesses with ambitious growth aspirations can gain a competitive edge by minimizing the burden of manual contract management tasks.
This is precisely where contract management software comes into play. It automates and streamlines the entire contract lifecycle, from creation to execution and beyond.
Also read: Contracting in Business: Everything You Need to Know
Also read: 8 Top Contract Management Software Platforms
Who should be responsible for contract management at a small business?
Usually, it’s a lawyer at a business that takes care of contract management.
However, depending on the size and structure of the organization, you can assign the responsibility of managing contracts in the following ways:
#1 Hire a dedicated contract manager
This individual can be responsible for the end-to-end management of contracts, from drafting and negotiation to execution, monitoring, and renewal. They can also serve as the liaison between different departments and external parties involved in the contract process.
#2 Involve the legal or compliance department
In some small businesses, the legal or compliance department may take on the responsibility of managing contracts. These departments often have a strong understanding of legal requirements, risk mitigation, and contract terms.
#3 Distribute responsibilities across different departments
You could have sales or procurement teams handle contract negotiations and drafting, while the finance department monitors payment terms and financial obligations.
This approach can ensure that contract management is integrated into various aspects of the business and that those directly involved in the contract execution are responsible for managing the associated obligations.
#4 Outsource contract management
In situations where small businesses lack the internal resources or expertise to manage contracts effectively, outsourcing contract management to external professionals or agencies is a viable option.
Ultimately, the choice of who should manage contracts at your small business depends on factors such as the organization's size, available resources, and specific business needs.
Top 4 challenges in contract management for small businesses
Contract management can pose unique challenges for small businesses, particularly when it comes to balancing limited resources and expertise with the need for efficient and effective processes.
#1 Lack of resources and expertise
Small businesses often operate with lean teams, and contract management can be a complex and time-consuming task. Limited resources, both in terms of personnel and technology, can make it challenging to dedicate sufficient attention to contract management activities.
It's important for small businesses to recognize the value of investing in contract management tools or outsourcing services to alleviate this challenge.
“By building a CLM tool, we brought added value. When you’re spending multiple hours a day on redundant tasks, it’s a good sign to see small improvements to that process yielding tremendous results. The CLM tool helped our legal team work more efficiently and the sales team to see what we were doing to enable them. Also, we got the bandwidth to prioritize commercial work and strategic thinking. It also helped us document the work and learn from it, and as a side benefit, it helped make a solid business case to scale the legal team at Pinwheel.”
~ Ryan Nier, General Counsel, Pinwheel
Putting legal on the map in a hypergrowth startup
#2 Managing a high volume of contracts
Small businesses often find themselves juggling numerous contracts simultaneously. From supplier agreements and client contracts to vendor relationships, the volume can quickly become overwhelming.
#3 Ensuring contract security and confidentiality
In an increasingly digital world, ensuring the security and confidentiality of contracts is a top priority. Small businesses may lack the robust cybersecurity measures and protocols that larger organizations have in place.
Investing in secure cloud-based contract management software can provide you with the peace of mind that your contracts are protected from unauthorized access or data breaches.
#4 Dealing with contract disputes and negotiations
Contract disputes and negotiations are an inevitable part of business interactions, and small businesses are not immune to them. However, you may have limited legal resources or negotiation expertise to navigate these challenges effectively.
Seeking legal counsel from lawyers like you can be invaluable in resolving contract disputes and providing guidance during negotiation processes. You could also consider hiring Fractional General Counsel (GC), who can help you with legal advice on a part-time basis.
“The beauty of being a Fractional GC is that I can help a company scale up their legal function in a flexible way until they reach the point where they need to hire their first in-house lawyer, in which case I can help them with that first hire. I can lend them my experience of building legal teams from scratch and recruiting lawyers, and I can do that far better because of my intimate knowledge of the company’s needs. For both sides, this is a win-win - the business gets to hire a part-time experienced GC to take care of its growing legal function and, the GC gets to build a varied portfolio of interesting clients.”
~ Stephanie Dominy, Consultant GC, and Startup Advisor
The Future of Legal Leadership: Why Fractional GCs Are On the Rise
5 Best practices for contract management for small businesses
Effective contract management can safeguard your organization's interests and drive business success. To ensure efficient and streamlined contract management processes, it's important to embrace the following best practices that can optimize your operations.
#1 Standardizing contract templates and clauses to save time
Standardization is key to efficient contract management. It plays a crucial role in streamlining processes, ensuring consistency, and reducing the likelihood of errors in contract creation.
By establishing standardized contract templates, you provide a clear and structured framework for creating contracts within your organization. From payment terms and delivery schedules to those sneaky intellectual property rights and dispute resolution mechanisms, these templates ensure that you have all your bases covered.
Standardizing templates saves time and effort by eliminating the need to start from scratch with each new contract.
In addition to time-saving benefits, standardized templates contribute to maintaining compliance with legal and regulatory requirements. By incorporating relevant legal provisions, industry-specific clauses, and up-to-date regulations into your templates, you can ensure that your contracts align with the necessary legal frameworks.
Oh, and here's a pro tip—your standardized templates should evolve with time. Regularly update and fine-tune them based on your experiences and changes in the legal landscape.
#2 Maintaining a centralized contract repository for easy access
Imagine this: You're sitting in your office, trying to find a specific contract that you need to reference urgently. You start rummaging through stacks of paper, shuffling through endless folders, and praying that the contract you need didn't magically disappear. Sound like a nightmare? Well, it doesn't have to be.
By organizing and centralizing your contracts in one dedicated location, whether it's a virtual cloud-based storage or a physical filing system, you unlock a whole new level of productivity. You can retrieve any contract in seconds!
With secure cloud-based storage, your contracts are protected from any unexpected disasters. Plus, you get the added benefits of document version control, ensuring that you and your team are always working with the latest version of your contracts.
Also read: Contract Storage: Tips to Store Your Contracts Effectively
#3 Establishing clear roles and responsibilities to promote accountability
Effective contract management requires a well-coordinated team with clearly defined roles and responsibilities. When it comes to contracts, everyone needs to know their part and perform it flawlessly.
Imagine the chaos if everyone in your organization was handling contracts haphazardly. That's a recipe for disaster!
So, assign specific individuals or departments to handle different stages of the contract lifecycle—drafting, negotiation, monitoring, and renewal.
Phase 1: Drafting
Think of the drafting phase as the "origin story" of your contracts. You need someone with the exceptional ability to pay attention to detail to ensure all the important elements are captured accurately.
Phase 2: Negotiation
For the negotiation phase, you need a charismatic negotiator, armed with persuasive skills and the ability to strike deals that benefit your business. Maybe someone from the sales team?
Phase 3: Monitoring
Once the contract is in effect, it's time for the contract monitoring phase. Here, you need someone to ensure that both parties are fulfilling their obligations and that the contract stays on track.
Phase 4: Renewal
This phase calls for the forward-thinking strategist who can assess the contract's value, negotiate favorable terms for renewal, and decide whether it's time to bid farewell.
By clearly defining these roles, you promote accountability, prevent confusion, and ensure that contracts are managed efficiently and consistently.
Also read: Crafting winning RFPs for quality contract bids (+ Free RFP template)
#4 Implementing strong contract governance to ensure compliance
Contract governance refers to the processes and procedures in place to manage contracts and enforce compliance. Without a solid contract governance framework, you're navigating without a compass, risking stormy waters and hidden dangers.
Contract governance ensures that your contracts stay in line with your business objectives, regulatory requirements, and risk management strategies.
By implementing strong contract governance, you bring order to the chaos. Contracts go through a well-defined process, from initial approval to regular reviews, ensuring they align with your business goals and legal requirements. Moreover, implementing strong contract governance demonstrates your commitment to transparency, compliance, and risk management.
Pro tip: Don’t forget to regularly review and update your governance framework. As your small business grows and the legal landscape changes, you need to adjust your rules accordingly.
Also read: What is Contract Compliance? The Ultimate Guide
#5 Conducting regular contract audits and reviews
Conducting regular contract audits and reviews is like shining a spotlight on your contracts, enabling you to identify potential risks and optimize outcomes.
It's the key to maintaining contract compliance, identifying any deviations, and proactively addressing discrepancies before they snowball into bigger problems.
While conducting audits, you need to proactively assess contract performance, checking if all parties are fulfilling their obligations and if any deviations have occurred.
When it comes to conducting contract reviews, you must look into key terms, pricing structures, and contract performance metrics to ensure that your contracts continue to align with your ever-evolving business goals.
But it's not just about mitigating risks and avoiding trouble—it's also about maximizing value.
Through contract audits and reviews, you identify areas for improvement, renegotiation, or even termination if necessary.
Also read: 4 Crucial Contract Management KPIs to Track for Legal Success
How can small businesses manage contracts with SpotDraft more efficiently?
“Technology is particularly helpful for organizations that are small but need to scale efficiently. For example - SpotDraft helps me generate and execute contracts faster so I don’t have to spend as much time on administration. So, we will be able to 10x the number of contracts we deal with without 10x-ing the number of lawyers we have."
~ Ben Bowden, Deputy Chief Compliance Officer, OKX
Leading Through Change in Law and Finance
When it comes to contract management for small businesses, SpotDraft is the number one platform. It helps you manage contracts with ease and efficiency, and lets you scale without having to onboard employees for contract management.
Let’s explore some of the top features that makes SpotDraft the ideal solution for small business contract management.
#1 Searchable repository
SpotDraft provides a virtual treasure chest where all contracts are neatly organized and easily searchable, saving you time and effort in finding the information you need.
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#2 Quick and hassle-free collaboration
With SpotDraft, you can collaborate seamlessly with relevant stakeholders in a virtual meeting room, making real-time edits, comments, and approvals, eliminating the need for endless email threads.
#3 Encryption and data protection
SpotDraft prioritizes the security of your contracts by offering encryption and data protection features, ensuring that your sensitive information remains confidential and safeguarded from any potential threats.
#4 Scalability
As your small business grows, SpotDraft can scale alongside you, adapting to your evolving contract management needs. Whether you're managing a few contracts or a vast universe of agreements, SpotDraft can handle it all.
#5 Enhanced control and visibility
SpotDraft provides a centralized platform where you have complete control and visibility over your contracts, allowing you to track contract statuses, monitor obligations, and gain valuable insights.
Uncover hidden risks, optimize performance, and unlock the full potential of your contracts
Effective contract management is vital for the success of small businesses. It provides a solid foundation for business deals, supplier relationships, and overall operational efficiency.
While manual contract management processes can be time-consuming and prone to errors, you can leverage contract management software like SpotDraft to streamline your operations and unlock significant gains.
By embracing small business contract management best practices and leveraging technology like SpotDraft, you can unlock new opportunities, mitigate risks, and build strong foundations for future success.
Want to see SpotDraft in action? Request a demo!
