Biz owners often ask me if they need to create a contract. If you’re even WONDERING if you need, one, then the answer is probably YES. I can tell you too many stories about good deals gone bad because there was no contract.
A Tragic Tale…Could Happen to Anyone
One of the worst I heard recently was from a contractor who has worked for 15+ years without using contracts (that’s like walking a tightrope without a net—he’s been lucky not to fall before now). He had an oral agreement with a real estate agent to do an $8,000 bathroom remodel for a home being sold by a man in his 80s. The agent had an oral agreement with the homeowner that when the house was sold, the contractor would be paid. Just as the project was wrapping up, the homeowner died. The family, who knew nothing of these oral contracts, refused to acknowledge the agreements and the contractor lost thousands of dollars in materials and time. He needed a contract—not because he couldn’t trust the agent or the agent couldn’t trust the homeowner, but because life happened!
“I don’t need a contract because my clients are my friends.”
But what if my clients are my friends, or become friends as soon as they become clients? Well, you know the saying “Good fences make good neighbors”? Well, good contracts keep friends friendly.
In fact, the closer you are to a person with whom you enter into a business relationship, the more you need a contract. More problems seem to happen between a business owner and his friends or family members than between a business owner and the strangers who engage with him solely to do business.
Now, admittedly, my law school training consists of watching The People’s Court, but I can tell you this for sure: almost every person on that show has gone to small claims court after a deal went bad and there was NO CONTRACT.
I started using a contract with my very first client. I did a Google search for a coaching contract and I found one, and to be honest, I used it almost exactly as I found it. Over the years, I have personalized the contract to better suit my way of coaching and billing, and so far, it has had the desired effects in most situations. Some attorneys might groan, but it was the right way for me to start out.
What are the “desired effects” you want for your contract?
1. Specify Clear Expectations
First and foremost, the purpose of a contract is to specify what each party gives up and what each party receives. The most important element of a contract is that there is a “meeting of the minds.” In other words, both parties need to see things the same way and have the same understanding about what each side gives and each side gets.
2. Avoid “Project Creep”
Second, a contract should keep both parties from trying to modify the arrangement. What, how, when, and where services are performed or products are delivered should be clear. How, when, and how much the other party pays should be clear. The consequences for a party dropping the ball should be clear. If you’re late, what does the other side get? If they pay late, what do you get?
3. Convey Trust
Third, a contract will keep you and the other person from getting your feelings hurt. People seem to avoid creating contracts for deals with loved ones—or even acquaintances—because they don’t want to make things too formal. Maybe you feel embarrassed to have a contract. Maybe you think a contract says, “I don’t trust you, so I’m going to make you sign this contract.” But what it really says is, “You can trust me, which is why I’m going to sign this contract.”
4. Avoid Court
Fourth, a contract should actually keep you OUT of court. When someone asks for something to which you didn’t agree or complains about something that was already agreed upon, use one of my lines: “I would invite you to review the contract.” Now, having a contract also means that YOU need to hold up your end of the bargain. It ALSO means that if someone violates your contract, you need to pursue the remedies due to you. If you don’t, it makes the contract pointless. Judge Marilyn Milian always says if you don’t have a contract, “We have a name for people like you. We call them litigants!” Do you have to go to court for a remedy? Hopefully not, but if you do have to go, you’ll be well-armed with a signed agreement.
Put All Changes in Writing
A quick reminder that if you’re going to make changes to the contract, do it in writing. At least document the new agreement via email and get the other party to acknowledge it. Even text message threads about the topic will hold up in court, at least according to the The People’s Court.
Do you need an attorney to help you with your contract?
An attorney would be great and would make sure all your t’s are crossed and I’s are dotted. But if you’re putting off creating a contract because you can’t afford an attorney, that’s backwards. Better to have something in writing than nothing. Ask a colleague if they’re willing to share a contract with you as a starting point, or do what I did and search the internet.
Disclaimer, as if it’s needed:
I’m not an attorney and I don’t even play one on television. I’m just a business coach who has seen too many bad deals go down because of a misunderstanding at the beginning or middle of the process. It should go without saying that this article is not legal advice and you should consult an attorney about YOUR contract.
photo credit: HowToStartABlogOnline.net