Why do I need a contract? Common doubts and reasons to ignore them.
“I have nothing to worry about, my partners/employees/customers would never do anything to hurt me.”
Life is uncertain. Half of all marriages end in divorce. Doesn’t it stand to reason that business is also uncertain? You should not necessarily prepare for your colleagues and customers wanting to cause you harm. The likelihood is that you are a good judge of people’s character, and you choose your colleagues and customers based on the fact that they are skillful and have good reputations in business. What happens when something outside of their control causes you harm? A bankruptcy or a divorce might change their circumstances to such an extent that they are no longer able to behave in a manner consistent with their previous reputation. In order to protect yourself from a change in circumstances, you must have a contract that will ensure you will be able to get the benefit of your bargain, and if not, some other remedy.
“My clients or employees will be insulted if I make them sign a contract.”
Sometimes, the industry or cultural group with whom a business works has a tendency to avoid written contracts. Under these circumstances, people often tell me that they do not want a contract because their clients prefer to do business “on a handshake.” They feel that having a formal contract would be a turn-off to others because it would make people feel suspicious.
It is admirable to have such a good reputation that people will not insist on a contract. That being said, your contract is part of how you present yourself to your customers and clients. Doing business on a handshake is not the answer. A simple, brief contract that is written in plain language, and that covers the basic expectations of your agreement, along with remedies in the event of breach, is critical to ensure you and your colleagues get the benefit of their bargain. A handshake understanding can be memorialized in writing.
“I found a perfectly good contract on the internet.”
You are an intelligent person, and you are an expert at what you do. But you are not an expert in law. Even lawyers hire other lawyers to represent them or do legal work outside of their areas outside of their expertise because as the adage goes, “the man who represents himself has a fool for a client.” All of the legal mumbo jumbo in those contracts actually means something, and it could put you in breach of your own contract if you don’t understand what you are promising to do. By way of example, I had a client come in for a contract review and revision after he became fed up with non-paying clients. When I reviewed the contract, I realized that he had been promising to indemnify clients, or defend them at his own expense, in the event of any computer data losses. I was glad to be able to put a stop to this commitment before it became a problem.
“I can’t afford to hire a lawyer.”
When people start businesses, they are often on a low budget, and they think their funds are best spent on other needs: rent, marketing, accounting. When you start a business with the help of a good lawyer, you will find that you do not encounter as many problems. Your invoices get paid, you get along with your partners, your employees understand the limitations of their relationship with you. The nightmares begin when you have no attorney. A trusted client fails to pay you $100,000.00 that you were counting on. A partner stops showing up to work but you still must split the profits with her. An employee steals your client list and sets up a new business with all of the information that you taught her. These, and other terrible experiences can all be avoided, or at least mitigated, with the help of specific contracts, tailored to your business needs. Spending a few thousand dollars when you found your business on the basic needs of every business, specifically an operating agreement, a client agreement and an employee agreement, can save hundreds of thousands of dollars in losses or litigation expenses later.
The Importance of a Lawyer Reviewing a Contract
Common Mistakes Made by Business Owners with their Contracts
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