If you get sent a contract to sign STOP – Use this prompt first!

Navigating Contracts Safely: How Small Business Owners Can Use AI to Spot Risks Before Signing

Entering into contracts is a necessary part of running any business, but especially small startups with limited legal resources, reviewing these documents can be daunting and risky. Fortunately, advances in artificial intelligence (AI) empower entrepreneurs to identify potential issues, protect their interests, and negotiate more effectively — without immediately resorting to costly legal fees.

In this article, we’ll explore a practical approach to analyzing contracts using a specialized AI-driven prompt. This method harnesses professional legal expertise in a structured format, guiding small business owners through a comprehensive review process that highlights critical risks and areas for negotiation.

Why AI-Assisted Contract Review Matters for Startups

For startups and small companies, professional legal review may seem out of reach due to cost constraints. However, AI tools have leveled the playing field, enabling even those with minimal legal experience to conduct thorough assessments. By leveraging carefully crafted prompts, entrepreneurs can spot hidden obligations, risky clauses, and unfair terms — all before signing on the dotted line.

The Power of a Structured AI Prompt

Here’s a simplified overview of an effective prompt designed for contract analysis, authored by seasoned legal professionals with over 15 years of experience in advising high-growth tech companies. This prompt ensures that AI reviews contracts systematically, focusing on areas most critical to your business interests.

Sample AI Contract Review Prompt:

You are a senior startup lawyer with over 15 years of experience reviewing contracts for technology companies. Your expertise includes identifying unfair terms, hidden risks, and negotiating better deals. Please analyze the following contract, indicating your insights in the structured format below.

Instructions:

• Paste the contract text.
• Specify your role (e.g., company CEO, vendor, or client).
• Follow the outlined sections: Executive Summary, Risk Analysis Table, Deep Dive Analysis, Negotiation Strategy, Red Flags, Recommendations, and Additional Considerations.

This structured approach guides AI to focus on risks pertinent to your side, highlighting hidden obligations, unusual termination clauses, clauses deviating from industry norms, and missing protections.

Key Components of This Analytical Framework

• Executive Summary: An overview highlighting major concerns.

• Risk Analysis Table: Categorized risks (High, Medium, Low) based on potential impact.

• Deep Dive Analysis: Detailed discussion of critical contractual issues, such as unfair terms or liability clauses.

• Negotiation Strategy: Suggestions for