My client "Michael" signed a service contract with his accounting firm, thinking they'd handle his books and supplier payments. Little did he know at the time, how bad it would get.
When the accounting firm kept messing up, Michael tried to terminate the contract. But, the contract had a major flaw: it automatically renewed every 2 years, and cancellation required a 30-day written notice at the end of each term.
There was no way to get out of the contract early without paying for the whole 2-year term, even if he wanted to terminate for cause, because the fee was non-refundable.
Attempting to break free, he was slapped with a staggering $50,000 bill, covering fees for the entire term.
Worse, the firm held his accounting records and control over his bank account hostage until the bill was paid. A lawsuit was considered, but the costs outweighed the benefits.
In the end, Michael had to hire a new accounting firm, recreate all the records, and face a financial hit that could've been avoided with a better contract.
One of the most important things to look out for in a contract is what will be your (and the other party's) way out of it.
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