I’ve heard this exact question from more than a few small business owners in the last few months, and funnily enough the answer is as much about business relationships as law.
Putting to one side whether any service-based business is genuinely low risk (some are but many more are not), there are some excellent commercial reasons to have a contract in place to document the deal that you’ve done with your client.
It’s an age-old story…
Picture this: you’ve had several meetings with a prospect. You feel like you’re on the same page, the prospect says your service is exactly what they need and you’re both excited about making beautiful business music together. You exchange a couple of emails to agree the price, although there’s no formal written summary of what/when/how you’ll be delivering your service. That’s OK, you think to yourself – it’s a simple deal and you both know what was agreed, plus you have it in writing that they’re going to pay. What’s the point in souring the friendship by demanding their signature on your T&Cs?
A little while down the track, you’ve spent a fair amount of time on what you thought was the agreed work. Time is money for every business owner, so that means you’ve incurred a bunch of costs. You get a call from the client: their needs have changed, but as (in their view) the new deliverable they want is along the same lines as what you agreed in your meetings, they don’t see that there should be any adjustment to your fee. You are taken aback: this isn’t what you thought you had agreed and will require significant additional work. However, you have nothing documenting your deliverables.
What do you do? In practical terms you have two options: (a) argue the toss, which probably has some relationship risk at the very least because it turns into a “we said/you said” competition; or (b) suck up the cost of doing the rework. Neither of these is ideal, because at least one party feels like they’re not getting the project outcome they bargained for.
What could you have done differently?
Well maybe I’m biased, but I say you could have entered into a simple written contract that clearly documented the scope of your services, the agreed deliverables and the associated fee, thereby settling everyone’s expectations about project outcomes and providing the scaffolding to proactively discuss changes to the deal.
But everyone hates talking about legals…
The difficulty that many business owners seem to face is having the “contract talk” with their clients. It seems like the contract is viewed as something to be hated and feared, whose only purpose is its use as a weapon to beat each other up when things go wrong.
Reframe it in a positive light
Don’t think of it as “legals”. Think of it as a Relationship Management Tool. There are some major benefits to having such a tool in place at the start of the relationship:
1. Managing expectations.
Everyone knows exactly what was agreed and exactly what they are going to get out of the deal. If the draft written document doesn’t align with both parties’ understanding of the pre-contract discussions, it can be clarified before anyone suffers costs or bad feelings.
2. Managing change
Business is unpredictable and sometimes client needs change before the project is finished. If the scope of services has been well articulated in the contract, it’s easy to work out what parts need to be changed, and any associated implications for your fee. If you’re in an industry where change is par for the course, you can also agree some steps to follow to agree changes in scope and price.
3. Managing the end of the relationship
It’s a sad reality in fast-paced business environments that sometimes your agreed deliverables will become surplus to requirements. It does not necessarily mean the client isn’t happy with your work, but simply that their strategic objectives have changed.
The best time to agree on how you and your client will part ways is right at the start, when you still feel warm and fuzzy about each other. Think of it like a pre-nup for your business relationship. If there is a pre-agreed procedure for the cost and notice implications of an early end to your relationship, everyone knows where they stand and you can manage the risk of hard feelings, thereby enhancing the potential to work together again in future.
Have a pre-prepared contract template with two key sections:
- Part A: a schedule for project specific details like contact details, price, scope and exclusions; and
- Part B: a set of straight-forward, plain English terms and conditions that focus specifically on what your business does and can be used for every project.
Thankfully, we’ve waved goodbye to the days of 20 pages of 6 point legal jargon, although it is helpful to capture some relevant legal issues in your T&Cs (IP, liability and strategies to deal with delinquent payers are typically important to professional services providers) and to set out any obligations that the client must discharge to support your services (e.g., providing project information in a timely manner).
There’s no need to fear the legals, we’ll hold your hand
People fear raising the topic of legals, but having a contract template ready to go makes you look like the professional operation you are. Plus, there are many platforms in the marketplace now that facilitate painless exchange and execution of contracts (Docusign is perhaps the most well-known of these).
Do you need a contract template for your business? Get in touch, SoundLegal is here to help.
t: 0408 143 606