I recently had dinner with an old friend of mine and her new boyfriend, who runs a small contracting business. He was complaining that the recession hit him hard and that he’s got a growing list of non paying clients. My friend interjected, “That’s because you don’t have a contract when you take on new work! Thus when it comes to collection time, they find it easy to ignore you.”
In the ideal world, it would be great to seal every deal with a verbal agreement and handshake alone. Alas, we don’t live in an ideal world and to operate a business without written contracts or agreements can prove costly – if not altogether risky.
Nolo.com writes that you need contracts and agreements in writing if:
- Contracts that will last longer than a year.
- Contracts that involve the sale of goods worth $500 or more.
- Contracts that transfer the ownership of copyrights or real estate.
The provider of legal solutions also recommends that you keep your contracts in writing, even if it’s not legally required:
But even if it’s not legally required, it’s always a good idea to put business agreements in writing, because oral contracts can be difficult or impossible to prove.
It is also a good idea to consider the need for contract lifecycle management as part of your business agreements. In basic terms, contracts of all types have a lifecycle and you must be aware of where each contact is in its lifecycle to reduce risk and, therefore, losses. When you have one contract on the go, it is easy to keep track of its lifecycle, but when you have an entire portfolio to maintain, it becomes more difficult. This is where a service like Exari is valuable, as they organize, analyze, and integrate your contracts, ensuring that you get full value out of each one
My friend’s boyfriend tried to go after his non-paying customers in court but found it difficult to do so because he’s got no signed agreements or contracts in writing. And he’s not alone: many small business owners are so intimidated by hiring up lawyers (or think them to be too expensive) that they’d rather enter into agreements without anything formal written up.
When you are in business, document, and document! It is important for a business to keep everything in writing – from contracts with customers (e.g. service agreements), agreements with business partners, lease or rental agreements, purchase orders or contracts for goods worth more than a couple hundred dollars, even contracts with employees (if any).
If you are starting a business with a partner, be sure to have a document in writing governing the partnership. Include a “buy-sell” provision to address what happens to the partnership in the event of a partner’s death, divorce, disability, bankruptcy, resignation or retirement.
When you work with customers, keep everything documented and signed especially for services contracts. Clarify what is expected of you, the terms of work, and the payment required. The last thing you want is for a customer to stiff you because all you had is a verbal agreement sealed with a handshake. Worse, you take the customer to court for non-payment and you still lose because there was no signed contract!
Hire a lawyer to help you draft a comprehensive contract that meets your needs while protecting you from liability. Yes, lawyers can be expensive but getting their help to put in writing your contracts will save you tons of money and headaches down the road. Getting their help can help you focus on your business goals, and not be stalled or interrupted by disagreements with business partners, customers, employees, shareholders or tenants. Plus, your expense in hiring a lawyer is classified as a business expense.