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As a business owner, if you haven’t been burned because of your lack of a formal agreement with a customer, your day is coming. Regardless of the type of business you have, a contract is a must.
Are there any business owners who don’t know that they should always have a contract? Probably not but many, especially small business owners, often neglect to put a contract in place. Some of the reasons include:
1. Drafting a contract is a lot of time-consuming work.
2. They don’t know what to include.
3. They’re doing business with a friend or long-standing customer or client.
4. They don’t want to offend the customer or client.
Have you used any of these excuses? None of these are good reasons for not using a contract. If you’re a retailer, your contract could be on the back of the customer’s receipt and if you’re a freelancer or other service-based worker, it may be more formalized—a legal-looking document of sorts.
How to Write It
Just the act of putting something in writing is a good first step. You aren’t going to offend any reasonable person by asking for the agreement in writing. If it’s a friend, having a formal contract is one of the best ways to preserve the friendship, since the written, signed document will spell out the terms of the deal. Oral agreements, even if they may be valid in your state, can be difficult or impossible to prove in court.
One caveat: If the contract involves an amount of money that either you or the client would consider significant, have an attorney write it for you, or at least review it for you. Trying to avoid legal fees for creating or reviewing a contract now could cost you thousands of dollars (or more!) in legal costs if there's some future disagreement over the terms of the contract.
Cut the Legal Words
Wherefore, hereto, by with, and all of those other legal-sounding words don’t make the contract more legit. You also don’t need a bunch of subsections and headings. Your contract can be as informal as you would like as long as it clearly lays everything out.
Go to the Decision Maker
You’re wasting time if you’re negotiating a contract with somebody who doesn’t have the authority to sign the agreement. Deal directly with the decision maker.
RELATED: How to Negotiate Contracts with Big Companies
Pick the State
If you and your customer or client are in different states, pick which state laws will govern the contract. Additionally, specify that you will bring legal action in the state who will govern the contract.
The Contents of the Contract
Remember, you don’t need to use an arsenal of legal words but the contract should be detailed while remaining simple. Here’s what to include:
The date- When was the contract executed. Include the full date.
All Parties- If they’re going to sign the contract, they should be mentioned as parties to the agreement. Use their full legal name. No nicknames or half names. Don’t use anything like, “Mr. Smith.”
General Scope- Also called the agreement, this is a brief statement about what you will do for the client or customer. It may also include anything the other party should do to complete the work.
Payment Terms- Of course you’re going to include the final cost but also include the amount of the down payment and any other incremental payments throughout the job. Also include how you will accept payment. If it’s PayPal or credit card, you may want to add the fees into the amount depending on the size of the job.
RELATED: How to Collect When the Customer Won't Pay
Contract Expiration- If you’re performing ongoing work for the customer, the contract may include an expiration date. This allows you and the client to negotiate new terms at given intervals.
Along the same lines, include wording of how the contract may be terminated. This could include not paying at specified intervals, substandard service on your part or any other terms you and the other parties choose.
Signature and Date- Leave a place for each party to sign and print their name and date the contract. Each party should do this.
Attorney-written Boilerplate Contract
If your business repeatedly needs contracts for similar types of jobs, purchases or sales, have an attorney who works with small businesses draw up a boilerplate contract you can use and reuse in your business. Each time you have a new deal you will just need to change the name of the parties involved and any information that's unique (dates, names of the parties involved, quantities, dollar amounts, etc.) that are unique to the specific deal. Having an attorney create the boilerplate contract will help ensure the contract conforms to state laws.
Most industry organizations have sample contracts available to their members. You can also simply Google “sample contracts” to find general templates that you can download and change to your liking. Once you make your first contract, it’s quick and easy to change the details for future customers or clients.
The problem with using these sample contracts is that they may be overly complicate, and they may not conform to the specific requirements in your state. If you do want to use a sample contract you find online, we strongly recommend you have it reviewed by your own attorney.
Any reasonable person doing business with you will welcome a contract—even your friends or longtime customers. It clearly and objectively lays out the scope of the relationship that greatly cuts down on the potential for misunderstandings. You don’t have to be a lawyer to write a contract. Anything you put into writing that both parties sign is a contract.
Don’t wait until you get burned by a client or customer to start using contracts. Start today.
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