When you agree to perform services for a client, and the client agrees to pay you for such services, you and your client have entered into a legal contract, often referred to as an agreement. The terms of the agreement, however, are difficult to recall and prove unless in writing. A written agreement is pivotal as it puts clients on notice of business policies and terms, sets a professional tone, promotes consistency of policies, and is legally enforceable in court (the decision whether to sue a client to enforce a contract is, of course, a business decision, as well as a legal one, and should be carefully considered). The agreement, thus, helps to prevent misunderstandings and clearly defines the expectations of the parties. But, only if you understand the terms of your own agreement!
Some entrepreneurs choose not to use contracts for fear that a written agreement may be too formal or legal in nature and, thus, may scare a client away. Again, this is a business decision that should be given consideration, and you should determine if this is a real or imagined fear by communicating with your clients to test the waters. You can use a “letter agreement,” which may be less intimidating for clients. A letter agreement is typically a one-page agreement on your company letterhead written in a letter format. Another disadvantage of using a written contract is the cost of creating and advising it if you use an attorney. But do you always need an attorney in order to draft an understandable and concise business contract? Not always. You can use one of the many online, software, or print resources available to draft a simple business contract for your company. But make sure that you understand every term in your own business agreement. Yes, every term. Here’s why.
For a contract to be valid, there must be a “meeting of the minds” between the two parties. If you do not even understand the terms of your own contract, how can there be a meeting of the minds with your client? So, a word of caution: stay away from “legalese.” Use plain English so that the agreement is easy to understand and helps, rather than hinders, the understanding between you and your client.
While there are standardized contract forms available, be careful not to accept such standardized forms as is. I often see small business owners fail to adapt contracts appropriately, which causes embarrassing typos, inappropriate clauses, and general confusion. Not only does this look unprofessional, but in extreme cases it can also result in unenforceability of the contract in court. I can’t tell you how many times I have seen the embarrassing situation where a business owner took a standardized contract and failed to revise it appropriately for his or her own business. This often occurs when people copy agreements off of the Internet and fail to modify the terms. If litigation eventually occurs, the result of this behavior could be very costly indeed.
As a former practicing attorney and now a small business owner, I have been on both sides of the fence when it comes to contracts. So test yourself and make sure you understand your own business agreement. Even if you draft your own business agreement, it may be a good idea to have a business attorney review the agreement to make sure it contains the relevant terms (and to explain the terms to you), and fulfills the goals you want to accomplish. It is an expense worth paying for to secure adequate protection in the long term. Otherwise, your agreement is just a useless piece of paper that you (and most likely your clients) do not understand.
