Your Business Needs Contracts, Here's Why
Contracts aren’t usually a high priority for most entrepreneurs who are just starting a new business. I get it, you have more exciting things to focus on, like branding and marketing and figuring out how to land your first customer. You might be thinking it’ll cost you an arm and a leg to get a lawyer to create a contract for your business, or maybe you found a contract online that seems good enough. That online contract could work for a while, until it doesn’t. And do you really know what’s in it?
Here are a few reasons you should reconsider that free contract you got from Google, and how a custom contract can help your business.
Contracts help your credibility with prospective clients
Prospective customers want to know they are hiring someone who is organized and reliable. You might win the prospective customer over on a consult call, but your contract is an important first impression tool to start earning your customer’s trust.
A poorly drafted contract that is difficult to read, unnecessarily slanted, or just plain overkill doesn’t earn you any trust points with your new customer. If you’re operating with no contract at all, your prospective customer could wonder if you lack experience or if you’re really committed to their project.
A contract that is clear, balanced, and answers your customer’s questions about what to expect can help you earn your customer’s trust before you even start on the project. It sends the message that you don’t cut corners with your own business, and you won’t cut corners on their project either.
Contracts clarify expectations and provide boundaries
At the most basic level, a contract is essentially just an outline of expectations for a working relationship between two parties.
A contract provides an opportunity to set expectations for your services and clarify the scope of a particular project.
If you don’t have a clear project scope in writing, your client may be more likely to ask for things that you may not have agreed to before the project began (aka, scope creep). Your contract can even provide a process for the client to request changes or add-ons that are beyond the scope of the project.
It also helps you work through “what if” scenarios before any disagreement arises. What if you’re a photographer and your wedding client cancels after they paid the deposit? What if your client doesn’t respond to your emails requesting feedback so you can complete their graphic design project? What if a pandemic happens? (Too soon, I know).
Contracts divvy up intellectual property
One of the key topics that contracts address are the intellectual property rights of each party. If you’re a graphic designer, software developer, or you provide any service that involves creating tangible works for others you should want to know who owns what. What if you are a designer who develops 5 logo options, and your client chooses 1. Can you reuse any variation of the other logo options for another client? If you’re a client of a service provider, you should also want a contract to make sure you get the appropriate ownership or license rights to the work you’re paying the service provider to complete.
And don’t think this only applies to creative service providers. SaaS companies and other types of businesses need to ensure they are adequately protecting their intellectual property as well. Intellectual property rights encompass more than just patents and trademarks, so it’s important to make sure you have a contract that clearly delineates the intellectual property rights of each party.
Contracts hold everyone accountable and address key risks
If your client ignores your friendly invoice reminders after you’ve held up your end of the bargain, how do you hold them accountable to pay for the services you’ve provided? If you don’t have a written contract with details about your fees, you’re probably out of luck. If you do have a contract, you have an agreement to fall back on to prove the amount your client agreed to pay, and a means to enforce payment. Even if you never intend to take them to court to get your fees, the fact that you could is often a strong enough incentive to ensure you get paid. You might even be able to get paid a little extra if your contract includes penalties or interest for late payments.
On the flipside, if you’re the client, the contract might include a project timeline to hold the service provider accountable to meet important deadlines, for example.
Similarly, contracts help determine which party bears the cost of certain liabilities that may arise. I won’t bore you with the details, but just know that there are some risks you don’t have to be responsible for, as long as they’re covered in the contract.
Bottom line: Contracts boost your credibility, set expectations, clarify important rights and obligations, and keep both parties in line.
Contact Us To Create or Refresh Your Contracts
*This blog provides general information for educational purposes only. It is not intended to constitute specific legal advice and does not create an attorney-client relationship.*