In my first couple of years in business I worked without a contract, which was a huge risk. Fortunately I’ve never had a serious issue with a client, however I’ve probably extended myself more than I should have in order to keep every client happy. Recently a friend introduced me to Annette Stepanian, an attorney who works with creative entrepreneurs (like me!). I knew it was time to start taking my business seriously, especially since we were new homeowners and were starting a family. With Annette’s help I was now able to offer a contract for graphic design services. The process was so simple and my contract even included a PDF supplement that helped explain each section of the contract so that I fully understood what I was sending to clients.
Annette is joining the blog to answer some Q&A’s on why service-based entrepreneurs need to offer a contract.
Why is it so important for a business owner to offer a contract?
Granted there are select circumstances in which a contract is required to be in writing, in my book, running a business without a contract is a big no-no. Here are some of the benefits of having a contract in place for your business:
- Clarifies The Parties’ Expectations: At the most basic level, one of the major benefits is it serves as a tool to clarify everyone’s expectations and avoid misunderstandings. For example, if Jim and Jane agree that Jim will paint Jane’s house for $500 – at first glance, this seems clear enough. But when we dig in deeper, we realize, there are still a lot of unknowns. For example, who is responsible for purchasing the paint and supplies? Is that included in the $500 cost? When will the work be completed? Will Jim be painting the inside or the outside of the house or both? Having the agreement in writing creates a platform to think through and clarify these terms so as to avoid any problems in the future.
- Keeps a Record of Your Rights & Obligations: In the event the relationship goes south, (and unfortunately, they often do), a document that clearly spells out each party’s rights and obligations can be huge a lifesaver in the case of confusion or disagreement. Memories fade and often times we can’t remember what we agreed to years before, so a written agreement will refresh your memory.
- Helps Prove Your Case: Although in some circumstances oral contracts can be valid, they are more difficult to prove in the event that you’re ever standing before a small claims court judge. My experience has been that a judge will be very reluctant to uphold an agreement that isn’t it writing.
What advice would you give a business owner that is thinking about offering a contract, but is nervous that it might scare off clients?
I know a lot of creative entrepreneurs worry that a contract might scare off a potential client because it makes it “too legal and formal.” In addition to the reasons stated above, having solid contracts in place communicates that you are a professional, that you have processes and procedures in place, and that you take your business seriously. In my opinion, NOT having a contract might scare off a client more than having one. To address any concerns a client may have about a proposed contract, I would recommend that a business owner really understand the contract they asked their client to sign so that they are prepared to answer any questions posed by a potential client. (Annette includes a PDF with her contracts which explains everything you need to know about your contract!)
“In my opinion, NOT having a contract might scare off a client more than having one.”
Does a contract guarantee that a client will pay according to the terms?
As in life, there are no guarantees. Unfortunately, sometimes despite having a written agreement, a client may not pay according to the terms or may refuse to pay altogether. This may happen for a variety of reasons. But having a written contract can be helpful should you find yourself in this scenario, especially if you have to resolve the issue before a mediator, arbitrator or judge.
What types of contracts are available for business owners?
There are a variety of contracts and the types of contracts a business owner should have will vary based on the type of business they run. On my website, I’ve included some of the more commonly used contracts broken down by industry for photographers, graphic designers, event planners, and consultants. At a minimum, if you are a service based business, I would recommend you have a Client Services Agreement which is the contract that governs the working relationship between you and a client regarding the sale of your services.
What should you do if a client asks you to edit or remove parts of your contract?
Every contract is negotiable. If there is a term that your client requests be revised or removed from your contract, you should consider the impact of that change on you, your business and your process. In particular, evaluate whether the requested change exposes you to greater risk or responsibility and whether you are willing to assume that risk or take on that extra responsibility.
Can a contract be changed after it’s been signed?
Most contracts include a clause that addresses how amendments or changes to the signed agreement will be handled. Usually such a clause will require that any changes to the agreement are made in writing and signed by both parties.
Is it effective to write your own contract?
Although there is no requirement that a lawyer draft your contracts, if at all possible, I would recommend it. For example, when I work one on one with clients, we walk through their entire business process and discuss potential pitfalls and risks and craft the necessary contractual language to mitigate those risks. I help them identify and thinking through the ‘”what ifs” of the contractual relationship and include the appropriate terms in their contract to minimize the risk should those “what ifs” become reality.
When is a good time to mention a contract to a prospective client?
Certainly this will vary based on the type of business you’re in and how you’ve structured your in taking process. I think a good time to mention a contract to a prospective client is early on in the inquiry process when you are explaining to the potential client about your process. So let’s say you’re a graphic designer and someone contacts you about designing a logo for her. In your response you may say “My rate for designing an original logo starts at x dollars. The way I usually work is after we have signed a contract, I will reach out to you to conduct a branding exercise and based on that I will design options for logos for you.”
Annette Stepanian is an attorney and creative business owner who helps creative professionals and entrepreneurs lay a legal foundation for their business. In need of a contract for your small business? Check out Annette’s contract templates.
This information is for educational and informational purposes only; it is not intended as and does not constitute legal advice and does not create an attorney-client relationship between you and the author. You should not act, or refrain from acting, on the basis of information provided here without first consulting legal counsel in your jurisdiction.