At one time in our society, business deals were sealed with a handshake. A man’s word was his bond. Well, a lot has changed since those days.
As a business owner, you should NEVER engage in a working relationship with another individual or organization without having some type of written agreement. Not only will this document protect you in the event that the other person feels as though you didn’t provide the agreed upon services but the converse is also true. It allows you to hold the other party accountable based on what they said they would do.
What information is essential to be included in a contract?
- Explanation of services/products to be provided. You need to have a clear outline of the responsibilities of each party within the document. Don’t take for granted that something is implied. Also, make sure your expectations are in line with the words on the paper. Even if it is one little thing, make sure that it is included because you can not go back and attempt to hold someone accountable to providing something that was included. Also, ensure that you are willing and able to provide the product/services as outlined in the agreement. If you are entering into a long-term engagement, review the document periodically to ensure you are holding up your end of the agreement. If you notice that the terms have changed, ask to renegotiate.
- Fees. Make sure the terms of payment to you or by you are clearly outlined. How often will payments will be paid? How will they be paid? How will additional expenses be handled? Will any deductions be allowed from the fees to be paid? How long will the fees be paid? Very important… do not make payment or accept payment until the terms are agreed upon by both parties.
- Cancellation. You can’t hold someone hostage in an agreement and no one should want to hold you hostage; however, there should be a clear process outlined as to how to end the engagement. How much advance notice is required? Would there be a refund of any fees paid? How should the other party be notified of the cancellation – phone call, written letter, electronic mail?
- Understanding. There should be some language above the signature line indicating that both parties understand the terms set forth and agree to the terms. Any changes to the agreement should be approved by both parties before the document is signed. Also, make sure that the person that you are entering into the agreement with, has the authority to enter into the agreement. If they are not the Owner or Manager of the organization, they may not have the authority to enter into a binding agreement on the organization’s behalf which could render your document void.
- Mediation. In the event that something goes wrong, how would the dispute be handled? It is common for small businesses to use mediation services because it is often less expensive than attorney fees and court costs. However, this should not be assumed.
These are some basic elements that you should ensure are included in your contract but there is more technical information that many people include such as confidentiality and nondisclosure terms.
Recently, I worked with a client and because we were “friends” I did not require him to sign a contract and began working under the normal terms that I operate with my clients. However, because we did not have a predetermined agreement, his expectations were not in line with the services that I was willing to provide. He felt that I was not being fair to not do everything that he wanted me to do but the requests that he was making were out of line with how I operate my business. Needless to say, once I realized my error, I resigned from working him and did not require him to pay any additional fees. I realized that I had made a mistake and allowed him to set his own expectations that I had not agreed to so I could not fault him for the deterioration of our working relationship.
It may be difficult and even expensive to enforce a breach of contract but in all of the years that I have used contracts with my clients, that has never been an issue. The main purpose our agreements serve is for us to have a mutual understanding of the terms of our engagement. You may have a different view of a contract’s purpose but whatever you do… get it in writing.