What Contracts Really Are = RELATIONSHIPS!

Contracts are a part of every business, but they are especially important for service-based businesses.  Most people dread contracts and think of them as a burden.  They can be seen as scary, overwhelming, technical, boring and costly. Some business owners try to avoid them altogether and prefer to do business the “old-fashioned” way – simply with a handshake.  Some business owners use a form contract just as a technicality – to get it done and check it off, regardless of what the contract actually says.  Many business owners think that a contract is only important if things go wrong.

 

If you’re one of those business owners, I’m going to challenge your thinking on all of that.

 

Of course, contracts are business tools that should be used strategically and thoughtfully.  But contracts are really just relationships – relationships with your customers and clients, your employees and contractors, your vendors and suppliers, your business partners and your service providers.

 

If you plan to be successful in business, you must have good business relationships, right? After all, who is going to hire you to provide them a service if you don’t have a good relationship with them?  And who is going to help you to provide those services without having a good relationship in place?  Whether inside or outside of your business, building good relationships with people is the key to success.

 

So I want you to start thinking about contracts as written relationships.  They need to be good ones.  They should set out what the relationship is, explain expectations, set obligations, and help to avoid misunderstandings.  Everyone likes to know what to expect in a relationship and a well-written contract can help put people at ease.  By setting out the details in the relationship, it can help to build trust right from the beginning.

 

There are two types of actions that a business owner takes: actions to move a business forward (Building) and actions to deal with issues that have happened in the past (Clean-Up).  A contract helps with both.

 

Clean-Up: Most people see contracts as providing security in case things go wrong.  That is certainly one of its benefits.  If you have a good contract, it can help you clean up a mess.  It can help you to enforce your rights, make sure someone performs the deal, and provide you with evidence if you need to resort to court action.  Those are all great benefits. But it rarely comes to that, does it?

 

Building: We think the most important benefit of a contract is what it can do on the front end of the relationship.  There’s some marketing appeal that can be done here and some ground rules established for a successful relationship. Here’s how we see that contracts can be a great tool to grow a business (and not just protect it):

 

IMAGE.  If you’re providing the contract, it needs to show who you are and how you do business.  Hopefully, it’s not sloppy, confusing or contradictory. You want to give someone the impression that you are a stable, respectable, established, knowledgeable and trustworthy business.

 

TRUST.  A contract should be straightforward and honest. By stating exactly how the relationship will work and having clear terms that are understandable, trust can be established right at the beginning.  That trust can then generate a good working relationship and increase the chances that the deal will be successful.

 

TONE. A contract can set the tone for a relationship.  It can create angst, or it can create confidence.  If there aren’t many terms spelled out in the contract and many issues are left open, then the tone of the relationship may be uncertainty.  If the language and provisions are highly formal, then the tone of the relationship may be distant.  If the language is optimistic and honest, then the tone of the relationship can be positive.

 

MOMENTUM. Why are you entering into the deal in the first place?  Because you want something to happen.  A good contract increases the chances of that thing happening.  It’s spelled out in writing – which has a psychological effect on its importance. It’s also good for alleviating misunderstandings – at the beginning when the relationship is getting started and later if someone “forgets” or remembers something differently.

 

So here is how I’d like for you to start thinking about using contracts:

  1. To establish a good relationship at the beginning.
  2. To show you know how to do business.
  3. To establish trust and reliability in your business relationships.
  4. To answer unspoken questions about how things will work.
  5. To create dependability in your business.
  6. To set a positive tone for how you will work together.

 

All of those benefits are just on the front-end of the relationship. Now add all of the usual reasons why people use contracts:

  1. To protect the business if something goes wrong.
  2. To use as evidence of the arrangement.
  3. To create remedies if someone acts badly.
  4. To give options for dealing with messes.

 

So no more dreading contracts, ok? Use them strategically to grow your business as well as to protect your business.  Think of them as two for the price of one.  Create good ones and have good relationships as a result.  Good relationships in business increases the chances that people will do business with you again in the future and encourage others to do business with you as well.

 

About ELEVATE Business Law

At ELEVATE, we love contracts.  We love reading them, drafting them, reviewing them, updating them, holding them and filing them.  Some of our favorites are service contracts – those contracts that our clients use to do business with their clients. It’s all about establishing that good relationship!

Do You Really Need a Written Contract with Your Client?

5 Reasons Why the Answer is YES

 

Most of our clients are businesses that offer specialized services, so we help them focus on building relationships with their clients and customers.  As part of that process, we look at whether they need a written contract with their clients.  Here are five reasons why a written “Service Contract” with clients is a good idea:

 

  1. A written contract sets expectations and establishes responsibilities.

 

It’s easy for confusion to occur.  Two people can often understand an agreement differently –   especially when you’ve been talking with clients over a period of time about how you can help them, what services you will provide and when they will be provided.  Maybe the services you provide are complex or you need to define the scope of services to avoid “scope creep,” which happens often with service businesses and can hurt margins.

 

By having a written service agreement with clients, the client has something concrete that defines your relationship and it sets out the responsibilities on both sides.  In the process of reading and signing a service agreement, a client learns what is and what is not involved in the provided services.  Whatever expectations they had (or assumed) can be confirmed or clarified by reading the contract language.

 

Having clarity in the relationship with a client is important.  When expectations are clear and everyone understands the division of responsibilities, it benefits the relationship with a client in many ways.  A good relationship with a client can help to avoid costly lawsuits and provide the basis for future engagements or referrals to new clients.

 

  1. A written contract can show a level of sophistication, professionalism and stability that can help your brand.

 

A well-written and presented contract can show that the business is organized, has good infrastructure in place and takes its obligations to clients seriously.  Alternatively, a lack of written contract or a poorly written contract can give the impression that a business is not very professional or sophisticated.  In some cases, it can even undermine a client’s confidence in the stability of the business.  This can set the tone for a client to have doubts about the quality of service and can lead to complaints.

 

  1. A written contract can help you get paid.

 

If you have a written contract with your client, it can include terms that help you get paid. At a minimum, the contract should state the fee amount so the client (or you) can refer to it in the event of any misunderstandings or disagreements over the amount due.  In addition, by setting the times for payment and providing for late fees, clients are aware of their responsibilities and the consequences of not paying on time.  In the event a client does not pay at all, the contract can provide for the client to pay all costs of collection, including attorneys’ fees, if it comes to that.  A written contract provides a record of the fee amount, a mechanism to collect payments, authority to charge late fees and the right to recover costs of collection.

 

  1. A written contract can provide terms to address specific circumstances.

 

There are circumstances where a business should have specific provisions that need to be in writing.  Some examples of these may be ownership of intellectual property that is created by the business, confidentiality of client information and authority or permissions that need to be granted to the business by the client.  Each of these examples are briefly discussed below.

 

As we have discussed in some of our previous blog posts on intellectual property, the creator owns the creation.  In order to change that general rule, you need a written contract.  If you are creating and intend for your client to own the final creation, then a contract would transfer that ownership.  If you are creating and intend that you retain ownership of the creation, a contract would set out the rights of the client to use the creation in limited circumstances.  This is often referred to as a “license” and the law requires it to be in writing.  Therefore, if a business provides services that involve intellectual property, a written contract with clients can be essential.

 

A written contract with a non-disclosure provision can reassure your clients that you will treat their information with care and keep it confidential.  Most service based businesses will encounter some type of client information that can be considered private.  Even if a client does not require confidentiality, a provision in a written contract shows that you are anticipating their concerns and respect their privacy.

 

If a business needs permission to access a client’s property or take action on behalf of a client, a written contract can establish the authority of the business to do so.

 

  1. If things go south, rules are already in place.

 

If your client (or you) is unhappy in the relationship, a written contract would have the rules in place for how to deal with the situation.  If either of you wants to terminate the services, you’ve both already agreed to the procedures that are set out in the contract.  Arguments over termination can be eliminated by following the contract.

 

If things really go south and a lawsuit is imminent, the contract rules can be very helpful in assessing the risk ahead.  For example, if there is an attorneys’ fee provision in the contract, it would provide the prevailing party the right to recover their attorneys’ fees from the other party.  Having the obligation to pay attorneys’ fees can be a factor in the analysis of whether to file or move forward with a lawsuit.

 

About Elevate Business Law

Elevate Business Law is a business law firm that provides businesses with information and guidance to move their businesses forward.  Our clients include professional and specialized service providers who want to establish valuable infrastructure to grow their businesses.  By reviewing and drafting critical contracts, we help them to establish that infrastructure.