Importance of the Non-Disclosure Agreement for Small Business

Small businesses do a lot of things to help protect the business and its owners from economic hardships. Things like insurance, security systems, and such are widely understood and employed. However, many small businesses fail to understand the importance of the non-disclosure agreement to protect their interests. Here’s why your small business needs to rethink its policies regarding non-disclosure agreements:


Establishes Protection for Trade Secrets


You better bet that Coca-Cola protects the secret recipe for its highly popular soft drink just as Hershey safeguards the recipes for its candy bars. Those are trade secrets that would devastate their businesses if they got out. Small businesses have trade secrets too — information you don’t want widely known or that could give your competitors an edge over your business.


The last thing you want is disgruntled former employees or contract workers who are no longer under contract spilling your secrets. Non-disclosure agreements prevent them from disclosing specific information to anyone disallowed within the agreement.


Defines the Information that is Confidential


Sometimes, it’s necessary to spell things out. You need to let contractors, freelancers, and employees know what they can and cannot share. Most people want to do the right thing by their employers. They want to do a good job and help the businesses they work for succeed.


These employees, contractors, and such would never intentionally share confidential information. However, if they don’t know what information is confidential, they may accidentally share it without even realizing what they’ve done. That’s why it’s necessary to spell things out.


Clarifies the Terms Under Which the Information is Shared


Clarity is always good when dealing with information that belongs to other people, businesses, or organizations. It’s important to clarify the terms or conditions associated with the information that’s being revealed to you or your business. Contractors and freelancers often find this to be a vital tool for protecting their interests when gaining access to the secrets of other businesses.


On the flip side, it’s  also important for businesses to clarify the terms by which the information is shared with others. You should also establish who has access to what information within the other organization if more than one person needs access to the information you provide. The language of small business non-disclosure agreements must be precise and extremely specific in order to be truly effective.


Non-disclosure agreements provide some protection from those who would do your business harm, accidentally or intentionally, by sharing the intimate secrets of your business. However, they are not guarantees that the other party will keep their end of the agreement.


With that in mind, you must take practical steps, for the sake of your business, to safeguard critical information and only disclose what is essential to the needs of your business. It’s also wise to keep accurate records of precisely what information is disclosed to others and who received the information in the interest of seeking justice in the event that your NDA is breached. In addition, speak to your insurance agent about protecting your business with business insurance including intellectual property insurance.  The good news is that most NDAs are effective because the average person honors them.