You Know What They Say About Assumptions
Written by James Sanders
The beauty of assumptions in a contract is that both sides believe they are true. However, more times than not, the assumptions made by one party don’t necessarily “square” with the other party’s view.
For example, if the seller of a business agrees that part of the purchase price is based on an earn out post-closing, they are probably basing that earn out on the way they ran the business. When the new owner takes over, they may have a different way of doing things and guess who is not happy, the seller. You can see how a dispute would certainly arise from making assumptions on the terms.
So, how do you make sure you cover all the details without making it overly specific? A few things to keep in mind:
- Before you write an agreement, negotiate a term sheet.
- Look at similar contracts or agreements and see what terms were included in them.
- Make sure you have a good understanding of the other party. Are they trustworthy?
- Work with professional business advisors or trusted mentors. They will typically look at the terms objectively and give you honest feedback.
- Trust your instincts. If it does not feel right, it probably is not.
Just remember, when you ASSUME, you make an >>>>>>>> (I will let you fill in the blank).
Next week, we get into the boilerplate provisions.